RBI, poor quarterly results lead to market consolidation

The broader market represented by the BSE Sensex opened for the week at 29,143 and closed at 28,717, down 400 points.

The week was marked by various events: the RBI's monetary policy review, the European Central Bank (ECB) meeting and announcement of corporate earnings. The Reserve Bank of India's (RBI's) sixth bi-monthly monetary policy meeting kept key interest rates unchanged-the repo rate at 7.75%, reverse repo at 6.75%-while it reduced the statutory liquidity ratio (SLR) by 50 bps to 21.50%.

RBI Governor Raghuram Rajan said more data was awaited for any further action on the rates front, adding that inflation is likely to be around 6% by January 2016.

According to Arundhati Bhattacharya, Chairman, State bank of India, RBI's policy was in line with market expectations of a status-quo.

"The SLR cut is expected to provide growth supportive liquidity of about Rs. 45,000 crore; with inflationary expectations at a 21-quarter low and coupled with a benign global environment, we are in the early phases of a prolonged rate easing cycle", she adds.

Overall, analysts expect further easing in repo/reverse repo by 25-50 bps in the next six months. The RBI has as much stated it explicitly that fiscal consolidation and disinflationary pressure would be the key factor for determining the policy.

"In this backdrop, the Union budget and the borrowing figures become increasingly important from the market viewpoint to determine the course and the pace of the rate cuts in the time ahead. Duration funds seem better placed to tap this evolving environment", says Lakshmi Iyer, chief investment officer (debt) and head products, Kotak Mutual Fund.

Market volatility continues to be high and with no further rate cut, sensitive stocks and high beta stocks are losing the shine added in expectation of the RBI meet. To add to this, earnings are being downgraded led by poor numbers in the third quarter of 2014. This has led to consolidation in banks and auto sector. The new development in Greece, with the ECB restricting loans to the country, is leading to underperformance in European markets.

Strong forecasts from Cognizant helped the IT stocks to close higher. On the last trading day of the week, the IT sector closed higher by around 1% and up by 500 points for the week. The Auto Index lost 1000 points in the week, ending at 19000-levels.

Tata Motors topped the selling list on Sensex, down more than 5% on disappointing numbers in the third quarter. Jaguar Land Rover (JLR) margins fell below estimates while the standalone business too was hit by one-off provisions. Barclays, however, reiterated its overweight rating with a lower target, saying the third quarter missed does not deter their 2015-16 outlook.

Besides IT, minor buying was seen in the FMCG space which ended up around 0.50%. The banking index ended the week lower about 1,200 points. This was mainly led by PSU banks, which have seen some selling pressure due to poor corporate earnings, higher NPA provisioning as well as status quo on rates announced by RBI.

For the week ended February 6, 2015, the biggest losers amongst Group A stocks were Bank of Baroda(22%), Oriental Bank(22%) and Punjab National Bank (18%) followed by Union Bank of India, Indian Bank, Bank of India losing 15% each. The other major losers were Crompton Greaves (16%) and Alembic Pharma (14%). The major gainers for the week were HDIL (31%), Future Retail (24%), UPL (21%), Kaveri Seen Company (19%), and HCL Technologies (18%).