Mumbai: Indian shares fell on Wednesday snapping two days of gains, led by declines in rate-sensitive stocks, such as ICICI Bank Ltd, following media reports that the central bank chief raised concerns about the high inflation, denting hopes of a 50 basis points rate cut this month.
The Reserve Bank of India (RBI) governor D. Subbarao has once again rained on the parade on Indian stock markets with his remark that inflation is “still quite high” though off its peak, and there is “no room for stimulus” on both monetary and fiscal fronts, according to news agencies.
Traders said the central bank’s policy review on 29 January would take precedence over earning season as the key driver for Indian shares, especially after RBI dampened rate cut euphoria.
“RBI’s direction on rates would be the key as it has been maintaining that inflation is the anchor point, so how can that change suddenly by putting growth in top priority,” said Jagannadham Thunuguntla, head of research, SMC Investments and Advisors Ltd.
Expectations for a rate cut had gathered momentum this week after headline inflation slowed to its lowest level in three years.
The benchmark BSE index, Sensex, fell 0.85%, or 169.19 points, to end at 19,817.63, marking its biggest single day fall since 21 December 2012. The broader NSE index, the Nifty, fell 0.90%, or 54.75 points, to end at 6,001.85, closing marginally above the psychologically important 6,000 level.
Shares of Bajaj Auto Ltd ended 2% lower after its prized profit margin slipped in the quarter to December, as rising costs and a fall in exports crimped earnings.
The company’s margin, trumpeted as the best in the industry, fell to 20.1% from 21% in the same quarter a year ago, as lucrative export sales slipped 2%. Bajaj Auto’s peer Hero MotoCorp Ltd also fell 0.51% ahead of its earnings report on Thursday.Shares in Tata Motors Ltd ended 3.24% lower after posting lower-than-expected global vehicle sales in December.
Tata Motors on Tuesday said global vehicle sales in December fell 13.9% to 98,968 vehicles, although sales at its key Jaguar Land Rover unit rose 4.2% to 32,282 vehicles.
Macquarie raised BSE index target to 22,200 points versus 21,600 earlier and NSE target to 6,900 points as against 6,600 previously. The investment bank said it expects reforms push to take India to 8% per annum growth over the next three years, improving to 6.7% in FY14 from 5.6% projected in FY13.
A survey of fund managers by Bank of America Merrill Lynch (BofA ML) also said that emerging market investors have adopted “a modest overweight” position on Indian shares for the first time since July 2010.
But with the risk of a hard landing receding in China, and with a potential cyclical shift in the making, BofA ML said, “there is a possibility of a move towards China over the next few months.”
Telecommunications stocks fell on profit-taking after a substantial rise in January, as of Tuesday’s close. Idea Cellular Ltd fell 4.21%, while Reliance Communications Ltd ended 5.93% down. However, among stocks that gained, shares in Reliance Industries Ltd rose 1.72% after rival Essar Oil Ltd said it swung to a net profit in the October-December quarter, with gross refining margins at a healthy $9.75 a barrel Dealers said Essar results point to a potential improvement in refining margins, which would be reflected in Reliance’s earnings on Friday.
Reliance is expected to report its first increase in profit after four quarters of declining profits, according to consensus of analyst estimates, Thomson Reuters Starmine data showed. HCL Technologies Ltd rose 1.44% ahead of its December quarter earnings report on Thursday. Reuters