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Global cues drag Sensex 206 pts; Nifty Bank loses 273 pts after RBI holds rates

The market extended losses in late trade and closed sharply lower on Wednesday, weighed largely by banking & financials after the Reserve Bank of India today expectedly kept repo rate unchanged but raised inflation forecast for second half of FY18.

Weak global cues and likely tough fight for BJP in Gujarat assembly elections caused selling pressure. All sectoral indices ended in red barring IT.

The 30-share BSE Sensex fell 205.26 points to 32,597.18, continuing downtrend for second consecutive session today. The 50-share NSE Nifty closed decisively below the 10,100-mark, down 74.20 points at 10,044.10.

Unlikely further rate cut due to inflationary pressures going ahead could be the main reason for fall in rate sensitive stocks today, experts feel. They expect the market to consolidate with a negative bias in near term, especially ahead of Federal Reserve Policy meeting next week and Gujarat State elections.

“Rising inflationary pressure, concerns of fiscal slippage and ongoing policy normalization by global central banks has straitjacketed RBI in terms of rate cut. Higher government spending and risk of deviation on the fiscal roadmap also pose inflationary risks. Effectively, the monetary stance remains unchanged and thus space for further easing is clearly ruled out,” Amar Ambani, Partner & Head of Research, IIFL said.

He sees no policy move during next two quarters.

Jayant Manglik President Retail Sales at Religare Securities said selective buy-on-dips is the preferred strategy at the current juncture.

The Reserve Bank of India, in its fifth bi-monthly monetary policy review, has maintained repo rate at 6 percent and Bank rate at 6.25 percent.

The central bank also retained projection of real GVA growth for 2017-18 at 6.7 percent, but revised inflation upward to 4.3-4.7 percent for Q3 and Q4FY18.

“The policy guidance is in line with market expectations reflected in spike in 10-year bond yields beyond 7 percent mark. RBI believes that the higher household inflation expectations and possibility of pass through of higher input costs may push inflation trajectory in future,” Kunal Shah, Fund Manager – Debt at Kotak Mahindra Life Insurance said.

Bond markets had already factored in bottoming out of rate cycle given state of government fisc and rising oil prices. Yields should now consolidate albeit at current levels and await clarity on fiscal front and inflation outcome especially in food prices. 10-year bond yields should trade in the range of 6.90-7.10 percent, Shah feels.

Globally markets were under pressure today on account of weaker metals prices and monetary policy concerns in China. Asian stocks declined across the board, with Japan’s Nikkei and Hong Kong’s Hang Seng falling 2 percent each. European markets were trading lower at the time of writing this article.

Back home, the broader markets also traded in line with benchmarks, with the Nifty Midcap falling a percent. About two shares declined for every share rising on the NSE.

The Nifty PSU Bank was biggest loser among sectoral indices, falling nearly 2 percent. Metal index also lost nearly 2 percent on correction in commodities prices.

HDFC, ICICI Bank, HDFC Bank, SBI, Vedanta, L&T, Eicher Motors, Bajaj Finance, Hindalco Industries, Sun Pharma and Tata Motors were down 1-3 percent.

Index heavyweight Reliance Industries (up 1.4 percent) and Infosys (0.6 percent) capped market’s losses. Apart from that, HUL, HCL Technologies, Maruti Suzuki and Tech Mahindra gained more than 1 percent.

In broader space, Canara Bank, UCO Bank, OBC, LIC Housing Finance, Voltas, JSW Energy, Jain Irrigation, NMDC, SAIL, MMTC, Manappuram Finance, Ajanta Pharma, Radico Khaitan and United Breweries down 1-5 percent while Dish TV, Bata, KPIT Technologies and PC Jeweller gained 1-5 percent.

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