Market reverses initial gains as Rajan"s comments on inflation weigh

Key benchmark indices reversed initial gains and hit fresh intraday low in morning trade after Reserve Bank of India governor Raghuram Rajan said on Thursday, 26 September 2013, that inflation continued to remain high. The barometer index, the SP BSE Sensex, Sensex was down 80.66 points or 0.41%, off about 185 points from the day’s high and up close to 20 points from the day’s low. The market breadth, indicating the overall health of the market, was positive.

Index heavyweight and cigarette maker ITC dropped. PSU OMCs rose as a strong rebound in rupee against the dollar this week has eased concerns of higher cost of crude oil imports. IT stocks rose on positive economic data in the US, the biggest outsourcing market for the Indian IT firms.

Foreign institutional investors (FIIs) bought shares worth a net Rs 172.15 crore on Thursday, 26 September 2013, as per provisional data from the stock exchanges.

In the foreign exchange market, the rupee strengthened past 62 against the dollar on general risk-on sentiment in global markets. The partially convertible rupee was hovering at 61.86, compared with its close of 62.07 on Thursday, 26 September 2013.

At 10:20 IST, the SP BSE Sensex was down 80.66 points or 0.41% to 19,813.19. The index declined 97.46 points at the day’s low of 19,796.39 in morning trade, its lowest level since 25 September 2013. The index rose 87.72 points at the day’s high of 19,981.57 in early trade.

The CNX Nifty was down 22.70 points or 0.39% to 5,859.55. The index hit a low of 5,854.95 in intraday trade, its lowest level since 25 September 2013. The index hit a high of 5,909.20 in intraday trade.

The market breadth, indicating the overall health of the market, was positive. On BSE, 852 shares rose and 643 shares dropped. A total of 115 shares were unchanged.

Among the 30-share Sensex pack, 16 stocks fell and rest of them rose. Bharti Airtel (down 2.64%), HDFC Bank (down 2.21%) and ICICI Bank (down 2.34%), declined.

Bhel declined 2.66% on profit booking after gaining 15.78% in prior three trading sessions.

Index heavyweight and cigarette maker ITC dropped 1.02%. The stock hit high of Rs 351 and low of Rs 345.35 so far during the day.

IT stocks rose on positive economic data in the US, the biggest outsourcing market for the Indian IT firms. HCL Technologies (up 0.59%), TCS (up 0.63%) and Infosys (up 0.5%), gained.

Wipro rose on its entry in 50-unit CNX Nifty index today, 27 September 2013. The stock was up 0.31%. The IT major replaced Reliance Infrastructure in Nifty.

PSU OMCs rose as a strong rebound in rupee against the dollar this week has eased concerns of higher cost of crude oil imports. HPCL (up 2.63%), BPCL (up 5.23%) and Indian Oil Corporation (up 1.61%) gained.

PSU OMCs import about 70-75% of their crude oil needs and rely heavily on foreign currency borrowings, which largely remain unhedged.

Wockhardt (down 5%), Indian Hotels (down 3.46%), Oberoi realty (down 3.25%), and Redington India (down 2.39%), were among the biggest losers from the BSE Mid-Cap index.

Bond prices dropped after Reserve Bank of India (RBI) governor Raghuram Rajan’s hawkish comments on inflation on Thursday, 26 September 2013. The yield on the benchmark federal paper 7.16% GS 2023 was hovering at 8.7789%, higher than its close of 8.7178% on Thursday, 26 September 2013. Bond prices and bond yields are inversely related. The RBI has a neutral stance on interest rates for now, but it is still worried about high inflation, even when taking out volatile food prices, Rajan said on Thursday, 26 September 2013. He said that inflation is not due just to higher food prices. “Unfortunately there is still some inflation when you strip out the effects of food and energy. Therefore it is not just food, it’s other factors also which are driving inflation,” Rajan told reporters on the sidelines of a conference. “CPI core (inflation) is about 8.2 percent, that is certainly high, but I think we are looking at all aspects of inflation at this point,” Rajan said.

Turning to cross-border capital flows, Rajan said that especially emerging markets were often the losers as flows turned around very quickly. “We need to solve this problem (of capital flows) and we need to take a more practical view of this,” Rajan said, without going into details.

Asian stocks rose on Friday, 27 September 2013, after US jobless claims unexpectedly fell and Japan’s inflation accelerated to the fastest pace since 2008. Key benchmark indices in China, Hong Kong, Taiwan, Indonesia, Singapore and South Korea rose 0.09% to 0.74%. Japan’s Nikkei Average fell 0.16%.

Japan’s inflation accelerated to the fastest pace since 2008 in August on higher energy costs, underscoring pressure on Prime Minister Shinzo Abe to drive wage increases as he seeks to end 15 years of deflation. Consumer prices excluding fresh food increased 0.8% from a year earlier, the statistics bureau said today in Tokyo.

Trading in US index futures indicated that the Dow could gain 16 points at the opening bell on Friday, 27 September 2013. US stocks rose on Thursday, halting the longest slump this year for the Standard Poor’s 500 Index, as an unexpected drop in jobless claims overshadowed concern that a budget impasse could hurt economic growth.

A Labor Department report showed the number of Americans filing applications for unemployment benefits unexpectedly fell last week, indicating further progress in the labor market. First-time claims for unemployment benefits in the US dropped by 5,000 to 305,000 last week. The economy expanded at faster pace in the second quarter from the previous three months, with gross domestic product rising at a 2.5% annualized rate, the Commerce Department said. A separate report added to signs that rising mortgage rates may have slowed housing market momentum. Fewer Americans signed contracts in August to buy previously owned homes, figures from the National Association of Realtors showed.

Investors are closely watching debt-ceiling negotiations in Washington. House Speaker John Boehner said on Thursday that his party will push for a bill that will tie increasing the debt ceiling and continue funding the government past Oct. 1 to more cuts in federal spending. Senate Majority Leader Harry Reid, D-Nev., said his chamber plans to have a stopgap budget bill finished by Sunday.

The Senate on Wednesday moved toward advancing a bill that would keep the government open after Monday without wiping out funding from the health-care law. Also Wednesday, Treasury Secretary Jacob Lew told Congress the Treasury will only have $30 billion in cash by Oct. 17, putting the nation on the brink of default.

The Federal Open Market Committee (FOMC) holds a two-day policy meeting on 29-30 October 2013. On 18 September 2013, the Fed surprised economists and investors with its decision to delay scaling back its stimulus amid concerns about the strength of the economic recovery.

Jeffrey Lacker, president of the Federal Reserve Bank of Richmond, said on Thursday that the US central bank will face risks as it pursues its exit strategy from recent unconventional policies. Lacker is a nonvoting member of the Fed’s policy-making committee. Participating on a panel in Germany, Fed Gov. Jeremy Stein, a voting member, said the US central bank should develop a methodical approach to tapering by linking reduced asset purchases to the unemployment rate. In Houghton, Mich., Minneapolis Fed President Narayana Kocherlakota, who votes next year, said the central bank should do “whatever it takes” to bolster the labor market.

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Market reverses initial gains as Rajan"s comments on inflation weigh