Indian shares extended their recent steep gains on Monday as the government's decision last week to raise diesel prices and relax norms for foreign direct investment in the retail, aviation, broadcasting and power sectors cheered investors.
Stocks pared early gains in the afternoon after the Reserve Bank of India in its mid-quarter monetary policy review left interest rates unchanged but lowered the cash reserve ratio for banks by 25 basis points, walking a delicate tightrope between growth and inflation.
As inflationary tendencies persist, the primary focus of monetary policy remains the containment of inflation and anchoring of inflation expectations, the central bank said in its policy statement.
Notwithstanding the volatility, the benchmark 30-share Sensex ended the session up 78 points or 0.42 percent at 18,542, a fresh 14-month closing high, with 18 of its components advancing. This is the ninth consecutive session of gains for Indian equities. The broader Nifty index rose by 32 points or 0.58 percent to 5,610, while the BSE mid-cap and small-cap indexes outperformed, ending up about 1.1 percent each.
The rupee today rallied to a four-month high before paring some early gains on disappointment over RBI not cutting policy rates. Announcing the surprise 25 basis CRR cut, the RBI lauded the diesel price hike and reduction in subsidized LPG cylinders, but said more needs to be done to bolster growth and shore up fiscal position. Echoing a similar view, ratings agency Moody's said the recent reform push will have minimal effect on the government's credit profile.
Meanwhile, commenting on the RBI's move, Finance Minister P Chidambaram said the CRR cut was a small, but welcome move. Promising more policy steps in the next one-and-half months, he added that the response of RBI on October 30 will be far more supportive of growth.
In stock-specific action, high-beta realty, growth-sensitive capital goods, rate-sensitive banking & auto and oil/gas stocks paced the gainers, while defensive stocks like FMCG and pharmaceutical tumbled on the back of improvement in risk appetite. IT stocks also fell sharply amid the rupee's recent strength.
Jindal Steel led the gainers in the Sensex pack, climbing 6 percent, while ICICI Bank, SBI, Larsen & Toubro, BHEL, Sterlite, Reliance Industries, Bharti Airtel, Hero Moto Corp and Tata Motors jumped 3-5 percent.
Among those that fell, ITC plunged 5.5 percent, Dr Reddy's and TCS fell 4-5 percent, Infosys and Hindustan Unilever lost about 3 percent each and Coal India retreated 2 percent.
Kingfisher hit the 20 percent circuit limit and SpiceJet soared 12 percent after the Cabinet Committee on Economic Affairs cleared a proposal to allow foreign airlines pick up to 49 percent stakes in Indian carriers. Among retailers, Pantaloon Retail jumped 19 percent and Shoppers Stop rallied 6.4 percent after the government allowed 51 percent FDI in the multi-brand retail sector subject to specified conditions.
JSW Steel rose 1.7 percent after the coal ministry cancelled the allocation of Gourangdih ABC coal block of the company for failing to develop mines within time. Karnataka Bank soared 5.7 percent after dropping plans to raise funds via a rights issue.
Tech Mahindra eased 0.7 percent on reports it is close to buying a majority stake in mobile phone software maker Comviva. Financial Technologies India edged down half a percent after private equity firm Blackstone GPV Capital Partners, Mauritius, raised its stake in the firm to over 6 percent through open market transactions.
Deccan Chronicle Holdings hit the 5 percent lower circuit limit ahead of a court verdict on the ongoing tussle between ex-IPL franchisee Deccan Chargers and the Board of Control for Cricket in India.
Elsewhere, other Asian markets turned in a mixed performance, tracking gains in the U.S. and Europe on Friday following economic stimulus announcements by the U.S. Federal Reserve. Inflation concerns, Spain's delay in not asking for a full bailout and public holidays in Japan and Malaysia resulted in somewhat lackluster trading across Asia.
Chinese shares fell 2 percent, dragged down by property developers after private data showed home sales in China's major cities fell in September following a strong rebound in the previous months.
European stocks were in negative territory as investors took some profits off the table following last week's rally triggered by Fed action.
by RTT Staff Writer
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