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Rate sensitive stocks drag markets lower; M&M down 3%

Benchmark indices are trading in the negative territory weighed down by auto stocks and financials after Reserve Bank of India kept policy rates unchanged. 

The Reserve Bank of India kept interest rates unchanged at 8% on Tuesday as widely expected, staying focused on containing inflation while adopting a more dovish tone in response to the government’s call for help to revive economic growth. However, the central bank indicated rates could ease early next year as inflation shows signs of cooling.

At 1.15 PM, the 30-share Sensex is down 77 points at 28,482 and the Nifty has slipped 25 points at 8,531.

Dinesh Thakkar, chairman & managing director, Angel Broking adds the RBI has kept key policy rates unchanged this time around, but the policy tone has clearly become far more dovish. In fact, the policy more or less indicates that by March-April 2015 itself, the RBI is likely to start cutting interest rates. Not only that, once the budget 2015 contours are known and inflation trajectory becomes increasingly certain, the RBI has also indicated that the rate cut cycle, once it starts, is likely to endure for a more sustained period of time. We have in any case held the view that broader interest rates, including bond yields are likely to head around 100bps lower over the next year, and the current policy further reinforces that. In our view, lower interest rates are likely to be a key positive for the investment cycle and GDP growth going forward. We remain positive on domestic cyclicals and markets overall.

Asian Markets:

Asian markets are trading firm. A rebound in crude oil and other commodity prices favouring the stock markets of resource-exporting countries. Japanese shares are up 0.5% and Shanghai Composite is up 3%, Straits Times is up 0.7% and Hang Seng is up 1.4%.

Sectors & Key Stocks:

On the sectoral front, BSE Auto and IT indices are down over 1% each. On the other hand, BSE Metal and Healthcare indices have gained nearly 1% each.

An appreciating rupee has casted its shadow on the IT stocks. Wipro and TCS are down 0.4% each. Infosys turned ex-bonus today for 1:1 bonus issue. The stock is down by almost 2%. The company has fixed December 3, 2014 as the record date for the purpose of allotment of bonus shares. However, the stock turned ex-bonus today. 

The financial segment is witnessing selling after Reserve Bank of India kept policy rates unchanged. HDFC twins, Axis Bank and SBI have lost between 0.4-1.7%.

ICICI Bank recovered from early lows and is up 0.6%. The stock turns ex-stock split on Thursday, December 4. Shareholders would be entitled to receive 5 equity shares of nominal value of Rs. 2 each in lieu of 1 equity share of nominal value of Rs. 10 each of the Bank.

The auto pack is losing sheen in today’s trade. Bajaj Auto has dropped 1.5%. The company’s total sales in November 2014 declined to 309,259 units compared to 310,591 units in the same month last year.

M&M has slipped 3% after reporting a 13% decline in total car sales numbers in November, 2014 compared to same month last year.  Hero Motocorp, Maruti Suzuki and Tata Motors have lost between 0.5-1%.

On the flip side, oil and gas shares firmed up after the brief correction on Monday. ONGC and Reliance Industries gained 0.7% each.

Fresh buying is visible in the metal pack. Hindalco, Sesa Sterlite, Tata steel and COAL India are up between 0.5-1.6%.

Bharti Airtel, L&T, NTPC and Sun Pharma are some of the notable names in green among others and are up between 0.5-1.3%.

In the broader market, the BSE Mid-cap index is up 0.4% and Small-cap index is trading with marginal gains.

Market breadth is weak with 1,426 losers and 1,245 gainers on the BSE.

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