Sensex sinks 661 points; monsoon, inflation woes undo rate cut

Indices plunged over 2 percent Tuesday as hawkish commentary from the RBI and a bleak monsoon forecast by the Meteorological Department rattled investors.

The 30-share BSE Sensex fell 660.61 points to 27188.38 and the 50-share NSE Nifty plunged 196.95 points to 8236.45. Midcap and small cap shares too took a beating, falling more than 2 percent. Market experts feel developments in monsoon, inflation, June quarter earnings and crude oil will decide near term trend.

Vibhav Kapoor of IL&FS said the Nifty will continue to see resistance at the 8500 level. According to him, further earnings weakness in store and the Nifty will trade between 8000-9000 for a major part of this year.

The Reserve Bank of India acted on expected lines by cutting repo rate by 25 basis points and keeping cash reserve ratio and statutory liquidity ratio unchanged.

However, the central bank raised inflation forecast for January 2016 to 6 percent against 5.8 percent earlier, highlighting monsoon as the biggest uncertainty at this point.

"Going forward, room (for more rate cut) may absolutely open up if monsoon is better than expected or government action can mitigate any potential rise in food prices and if energy prices stay contained," Raghuram Rajan, RBI Governor said.

This shows that the RBI expects a gradual recovery, which would in part be dependent on how the monsoons pan out, said Anis Chakravarty, Senior Director, Deloitte in India.

The central bank has advised caution while outlining the three major risks to inflation in the form of sub-par monsoons, oil prices moving up and a volatile external environment that are likely to guide on the quantum of rate cuts in the future, he added.

There was bad news on the monsoon front as well. The Earth Sciences Minister Harsh Vardhan has revised monsoon forecast downwards to 88 percent from 93 percent of long period average in April. The north western region which includes Delhi, Haryana and Rajasthan will be affected, he said.

The rupee, too, weakened in tandem with the equity markets today. The currency slipped 17 paise to 63.88 on the back of dollar demand.

Banks saw the major selling pressure with the Bank Nifty falling 3.4 percent. State Bank of India, Axis Bank and ICICI Bank crashed 4 percent followed by HDFC Bank with 2.7 percent loss. Housing finance company HDFC lost 3.55 percent.

Cigarette major ITC was the biggest contributor to Sensex's fall, down 4 percent after media reports indicated that Maharashtra government banned sale of loose cigarettes.

Two-wheeler maker Hero Motocorp tanked 3.8 percent after reporting a 5 percent fall in May sales.

Among others, Infosys, L&T, HUL, Sun Pharma, M&M, Cipla, Hindalco Bajaj Auto and Wipro were down 2-4 percent. However, Bharti Airtel bucked the trend, up 0.4 percent.

The market breadth was weak as about 811 shares advanced against 1875 shares declined on the Bombay Stock Exchange.

03:30pm Market Closing: Equity benchmarks shed more than 2 percent after teh Reserve Bank of India raised inflation forecast for January 2016 and Met Department cut monsoon forecast.The Sensex was down 660.61 points or 2.37 percent at 27188.38, and the Nifty fell 196.95 points or 2.34 percent to 8236.45. About 828 shares have advanced, 1860 shares declined, and 145 shares are unchanged.

State Bank of India, Axis Bank, Hindalco Industries, ITC, Hero Motocorp and IndusInd Bank topped the selling list on Nifty, down 4 percent. Lupin and Bharti Airtel bucked the trend, up marginally.

03:15pm Rajan says: Room for more rate cuts in India may open up if monsoon rains are better than expected or if the government takes steps to prevent food prices from rising and if global oil prices remain low, said Reserve Bank of India (RBI) Governor Raghuram Rajan on Tuesday.

"Going forward, room may absolutely open up if monsoon is better than expected or government action can mitigate any potential rise in food prices and if energy prices stay contained. Clearly, it is possible more room may open up and we will take full advantage of it as we see more room opening up," Rajan said on space to cut rates more.

The RBI chief was speaking to researchers at an analyst call after the central bank lowered the repo rate by 25 basis points to 7.25 percent, but struck a cautious note on inflation on worries over sub-normal monsoon projection.

The government on Tuesday cut this year's monsoon forecast to 88 percent of the long-term average, prompted by an El Nino weather pattern and raising fears of the first drought in six years.

"It is important to note that interest rates aren't the only instrument at work here. There are number of other things including government policy, including bank policy, all of which help to create growth," Rajan added.

03:00pm FM on plastic currency: Finance Minister Arun Jaitley on Tuesday made a case for greater use of plastic currency even as he stressed that development of new facilities at Hoshangabad and Mysore would help in reducing reliance on imports for printing of currency notes.

"The developed world has moved substantially to plastic currency and payment gateways. I think there is need for India and our determination is there to gradually take steps to move in that direction," he said.

Arun Jaitley was speaking at a conference on 'Make in India - Indigenisation of Currency' here. The minister said that the country needed to get rid of "obsolete methodologies" and catch up with the technologies of future to promote industrialisation and create jobs.

The plastic currency refers to the usage of credit and debit cards. It also reduces reliance on paper currency notes.

Meanwhile, Jaitley said that development of paper manufacturing facilities at Hoshangabad and Mysore would help in printing currency notes on domestically produced paper and promote 'Make In India' initiative of the Modi government.

"It's about time that we start at least printing our own currency with our own ink and paper. It is not merely symbolism. It also represents a thought process where there is a desire to bring back Indian manufacturing at a particular level," he said.

Jaitley last week inaugurated the New Bank Note Paper Line with an annual capacity of 6,000 tonnes at the Security Paper Mill (SPM) at Hosanghabad.

02:40pm Market Update: The Sensex plunged 636.42 points or 2.29 percent to 27212.57 and the Nifty fell 192.15 points or 2.28 percent to 8241.25. About 718 shares have advanced, 1842 shares declined, and 147 shares are unchanged on the BSE.

02:30pm Europe dives too: European shares dipped on Tuesday while German bond yields rose, with investors in the dark over whether a high-level meeting on Greece's debt crisis might herald a significant breakthrough.

The dollar hit a 12 1/2-year high against the yen in Asian trade before pulling back to trade down against the Japanese currency and the euro.

The leaders of Germany, France and Greece's international creditors agreed late on Monday to work with "real intensity" as they try to reach a deal that would prevent Athens from defaulting and potentially leaving the euro zone.

Athens is due to make a 300 million euro debt repayment to the International Monetary Fund on Friday.

02:00pm Market Check
The market extended losses in afternoon trade due to further selling in banking & financials, FMCG, auto and pharma stocks. Upward revision in inflation forecast by RBI and monsoon forecast downgrade dented the sentiment on Dalal Street.

The Sensex tanked 506.70 points or 1.82 percent to 27342.29 and the Nifty dropped 153.55 points or 1.82 percent to 8279.85. The BSE Midcap and Smallcap indices lost 1.5 percent each. More than two shares declined for every share advancing on the Bombay Stock Exchange.

Shares of HDFC, ITC, State Bank of India, Axis Bank and Hero Motocorp fell more than 3 percent. ICICI Bank, HDFC Bank, HUL, M&M, Cipla and Wipro were down over 2 percent.

01:35pm Market Update: Equity benchmarks extended losses again. The Sensex tanked 422.45 points or 1.52 percent to 27426.54 and the Nifty dropped 130.55 points or 1.55 percent to 8302.85. About 803 shares have advanced, 1628 shares declined, and 144 shares are unchanged on the BSE.

01:25pm Monsoon Update: India has downgraded this year's monsoon forecast to 88 percent of the long-term average, Earth Sciences Minister Harsh Vardhan said on Tuesday, raising fears of a drought in the country where nearly half of farmland lack irrigation facilities.

India in April forecast monsoon rains at 99 percent of the long-term average.

The forecast has an error margin of 4 percentage points.

01:00pm Market Check
The market is still under pressure. The Sensex is down 353.86 points or 1.3 percent at 27495.13. The Nifty is down 104.90 points or 1.2 percent at 8328.50. About 837 shares have advanced, 1541 shares declined, and 138 shares are unchanged.

Reliance, Bharti Airtel, L&T, ONGC and TCS are top gainers while Hero, HDFC, ITC, Axis Bank and SBI are among laggards in the Sensex.

The governor of the Reserve Bank Of India (RBI) said the finance ministry and the central bank agreed on the need for a separate public debt management office, but cautioned against moving in haste to overhaul financial regulation.

In April, Finance Minister Arun Jaitley put on hold a major overhaul of financial regulation that would have stripped the central bank of authority to regulate the government bond market and manage public debt.

Meanwhile, Greece's government can make no more concessions in negotiations for a cash-for-reforms deal and its international lenders must take responsibility for their role in the talks, Labour Minister Panos Skourletis.

Athens and its creditors from Europe and the International Monetary Fund are racing to prevent the country from defaulting on its debt and potentially leaving the euro zone.

The bloc has set a deadline of Friday to conclude the talks to allow time for institutions and ministers to approve a deal and secure parliamentary backing to disburse frozen aid before Greece's bailout expires at the end of June.

12:50pm Market Update: The Sensex drops 297.73 points or 1.07 percent to 27551.26 and the Nifty fell 89.20 points or 1.06 percent to 8344.20. About 873 shares have advanced, 1484 shares declined, and 130 shares are unchanged on the BSE.

The broader markets marginally outperformed benchmark indices; the BSE Midcap and Smallcap indices lost 0.7 percent.

12:45pm Rajan says: The governor of the Reserve Bank Of India (RBI) said on Tuesday the finance ministry and the central bank agreed on the need for a separate public debt management office, but cautioned against moving in haste to overhaul financial regulation.

In April, Finance Minister Arun Jaitley put on hold a major overhaul of financial regulation that would have stripped the central bank of authority to regulate the government bond market and manage public debt.

"There is a broader agenda of moving a whole lot of other things away from the RBI, and I think we are agreed that would not be wise without much deeper dialogue," Governor Raghuram Rajan said in a post-policy press conference.

"What is functioning well doesn't need to be disrupted for some hypothetical gain. So let us make sure we have a well laid out path, based on tangible progress and tangible value before we intervene based on some theory."

India's central bank cut interest rates for a third time this year on Tuesday, taking advantage of subdued inflation to give more support to an economy that many economists doubt is doing as well as latest growth numbers suggest.

12:30pm Emami in News: The FMCG major entered into an agreement with Sanjeev Juneja to acquire his hair & scalp care business under the Kesh King and allied brands.

"The transaction envisaged transfer of the business as going concern on a slump sale basis and will include brand portfolio of ayurvedic medicinal oil, herbal shampoo & conditioner and ayurvedic capsules along with its respective formulations and all related assets, rights and liabilities including working capital for a total consideration of Rs 1,651 crore," the company explained details of the transaction.

Harsha V Agarwal, Director, Emami said this acquisition is a part of aggressive growth strategy and marks company's foray into the ayurvedic hair & scalp care segment.

The acquisition will be funded by a judicious mix of surplus funds, short term & long term debt. The process is expected to be completed in a month's time, said N H Bhansali, CEO – Finance, Strategy & Business Development, Emami.

Sanjeev Juneja introduced its ayurvedic formulations in 2009. The Kesh King and allied brands had turnover of around Rs 300 crore (USD 47 million) in FY15 with 3-year CAGR of 61 percent.

Emami's current oil portfolio includes Navratna Cool Oil and Emami 7 Oils in one damage control hair oil in the light hair oil segment.

12:15pm RBI policy analysis: The RBI delivered as per market expectations by cutting the repo rate by 25 bps and bringing the rate easing cycle to a pause for the time being, said Anis Chakravarty, senior director, Deloitte in India.

He added that the central bank has advised caution while outlining the three major risks to inflation in the form of sub-par monsoons, oil prices moving up and a volatile external environment that are likely to guide on the quantum of rate cuts in the future.

"Importantly, the RBI now sees upside risks to its January forecast of 6 percent inflation and he also brought down its growth estimate. This shows that the RBI expects a gradual recovery, which would in part be dependent on how the monsoons pan out," Chakravarty said.

He sees this as a prudent monetary policy with future easing contingent on how the data shapes up.

12:00pm Market Check
The market showed mild recovery in afternoon trade, supported by oil stocks. Benchmark indices dropped more than 1 percent intraday after the RBI revised inflation forecast for January 2016 to 6 percent against 5.8 percent earlier. The apex bank also cut repo rate (the rate at which banks borrow money from RBI) by 25 basis points to 7.25 percent but kept cash reserve ratio and statutory liquidity ratio unchanged.

The Sensex fell 248.34 points to 27600.65 and the Nifty declined 74.35 points to 8359.05. About 867 shares have advanced, 1462 shares declined, and 127 shares are unchanged on the BSE.

Index heavyweight Reliance Industries gained 1.7 percent followed by ONGC and Bharti Airtel with 0.8 percent upside.

11:55 am Interview: With green shoots of recovery in the economy, the residential sector is showing some improvement, says Sarang Wadhawan of HDIL .The company has reduced its debt considerably to Rs 110 crore in the fourth quarter to become cash positive. Over the next two quarter the company will focus on execution of existing projects, given its business in TDR vertical is looking promising. He expects to realize a rate of Rs 5000 per square feet in TDR. 11:38 am Market check: The market continues to slip. The Sensex is down 427.24 points or 1.5 percent at 27421.75. The Nifty is down 128.75 points or 1.5 percent at 8304.65. About 770 shares have advanced, 1429 shares declined, and 134 shares are unchanged.

Hero, HDFC, ITC, SBI and Cipla are among major laggards while Bharti Airtel is in green.

11:20 am: RBI has revised inflation forecast for January 2016 to 6 percent versus 5.8 percent earlier.

The market has fallen sharply after RBI has kept cash reserve ratio (CRR) unchanged. The Sensex is down 274.08 points or 0.9 percent at 27574.91 and the Nifty is down 93.25 points or 1.1 percent at 8340.15. About 818 shares have advanced, 1243 shares declined, and 128 shares are unchanged.

The Reserve Bank of India has slashed the repo rate by 25 basis points. The repo rate is now 7.25 percent. Consequently, the reverse repo rate moves lower to 6.25 percent.

Hero, HDFC, ITC, Tata Power and SBI are major laggards in the Sensex. Among the gainers are Bharti Airtel and TCS.

Meanwhile, crude oil dipped on expectations that OPEC would not cut output at its meeting this week, but firm refinery demand curbed price losses.

Front-month Brent crude futures had fallen 10 cents to USD 64.78 per barrel by 0227 GMT on Tuesday, while US crude was down 5 cents at USD 60.15 a barrel. Those slight declines extended a 1-percent drop from the previous session.

10:50am Market Update: The Sensex fell 185.62 points to 27663.37 and the Nifty declined 54.05 points to 8379.35. About 846 shares have advanced, 1174 shares declined, and 128 shares are unchanged on the BSE. 10:45am

JP Morgan on Hero: JP Morgan is underweight on Hero Motocorp, given the ongoing slowdown in the industry. According to its report, The original equipment manufacturer will launch new scooters over the year to drive sales growth.

The brokerage believes growth rates over the year will be driven by the progress of the South West monsoons. It prefers Bajaj Auto in the two-wheeler segment, given its broad-based product mix across the domestic and export segments.

10:25am Market Expert: If the Reserve Bank of India (RBI) cuts 25 bps today, which is largely priced in, Nifty may gain may be 100 points on the upside close with 8,500 being the level where one see resistance happening,

believes Vibhav Kapoor of IL&FS. However, in case of no rate cut, market will take it negatively and heavy sell off is likely, he said.

Speaking to CNBC-TV18, Kapoor said if Governor Rajan cuts rate but his with a hawkish tone, market may see a short-term upside for a day or two but after that there could be a lot of selling happening.

The market has bounced from 8,000 level and is in a rebound stage at this point of time. Even good news like 25 bps could lead to selling after an initial rally. So the chances would be more that you would see the downside resuming after this, he elaborated.

10:00am Market Check
Equity benchmarks fell 0.4 percent in morning trade ahead of RBI policy meet. The Sensex lost 115.47 points to 27733.52 and the Nifty declined 37.45 points to 8395.95 due to selling in private banking & financials, FMCG, metals and pharma stocks.

The broader markets declined marginally. About 778 shares have advanced, 1013 shares declined, and 117 shares are unchanged on the BSE.

The Reserve Bank of India in its today's policy meet is likely to cut repo rate by 25 basis points, according a CNBC-TV18 poll. Cash reserve ratio and SLR may be kept unchanged.

ITC falls 2 percent as media reports indicated that Maharashtra banned sale of loose cigarettes. Hero Motocorp was down 2.6 percent post a 5 percent fall in May sales.

Shares of HDFC, Infosys, Reliance Industries, L&T, HUL, Cipla, Dr Reddy's Labs, Wipro and Vedanta declined 0.5-1 percent while Bharti Airtel, Tata Motors, TCS, HDFC Bank and SBI gained 0.2-1.3 percent.

9:55 am Buzzing: Shares of ITC and Godfrey Phillips slipped around 2 percent on reports that Maharashtra has decided to ban sale of loose cigarettes. After Chandigarh, this is the second region to declare ban on sale of loose cigarettes as there are no danger warnings to smokers on those sticks. Unlike cigarette packets, which carry a written and a pictorial warning, loose cigarettes carry no such deterrent. ITC has been struggling with its falling cigarette volume.

January-March quarter was the eight consecutive quarter of volume decline in cigarettes. The company says that it is seeing unprecedented pressure on legal cigarette industry sales volumes. In Q4FY15, its cigarettes revenue grew to Rs 4,210.7 crore from Rs 4,079 crore (YoY) with EBIT margin at 64.3 percent against 62.6 percent (Y-o-Y). ITC sells brands like Gold Flake, Classic and India Kings.

9:26 am Market check: The Sensex is down 112.23 points 27736.76 and the Nifty is down 37.25 points at 8396.15. About 585 shares have advanced, 593 shares declined, and 97 shares are unchanged.

Tata Motors, BHEL, TCS, ONGC and Sun Pharma are top gainers in the Sensex. Among the losers are Hero MotoCorp, ITC, HDFC, Tata Power and NTPC.

The market has opened flat ahead of RBI monetary policy review today. The Sensex is up 17.97 points at 27866.96 and the Nifty is up 1.35 points at 8434.75. About 429 shares have advanced, 187 shares declined, and 75 shares are unchanged.

BHEL, Tata Motors, ONGC, HUL and SBI are top gainers in the Sensex. Among the losers are Hero MotoCorp, ITC, NTPC, Tata Power and Dr Reddy's Labs.

US stocks began the month with modest gains after the data. Consumer spending remained flat in April, but construction spending and manufacturing gained momentum, backing the view that the US central bank is on track to begin to hike rates later this year.

The leaders of Germany, France, the International Monetary Fund, the European Central Bank and the European Commission agreed at a meeting late on Monday to stay in close contact in the coming days to work on Greek debt negotiations, as Athens and its lenders struggled to reach deal that would prevent the country from defaulting on its debt.