Nifty ends flat; banks, auto, realty up post Credit Policy

27 Jul 2010

The benchmark Nifty ended flat with a positive bias, led by rate sensitives post hike in key rates by RBI, which was in-line with estimates. Cement, select technology and telecom companies' shares also helped indices. Even global cues were quite supportive in second half of trade.

However, the sell-off in capital goods post L&T's disappointing numbers, select metal companies' shares along with HUL, NTPC, HDFC, Reliance Industries and Reliance Communications wiped out more than half of gains.

The much-awaited event, which acts as a major tool for controlling inflation - Reserve Bank of India's (RBI) Credit Policy was presented today. The central bank hiked repo rate by 25 bps to 5.75% and reverse repo by 50 bps to 4.5% while keeping the cash reserve ratio unchanged. This hike was as per market expectations. Uday Kotak, Executive Vice Chairman & MD of Kotak Mahindra Bank expected 50 bps hike on reverse repo and 25 bps on repo.

D Subbarao, Governor, Reserve Bank of India, said the monsoon performance is likely to shape its inflation outlook. "We need to contain demand-side inflation. It is important for us to continue watching demand side pressures." RBI, he said, has the flexibility to take pre-emptive action and is confident of its 6% inflation forecast for March. He sees some dampening impact on food prices.

Subbarao said the central bank will continue in the direction of normalising rates. "We will ensure that growth is not hurt while normalising rates." He expects both deposit and lending rates to go up.

Nilesh Shah, Deputy MD, ICICI Prudential AMC, feels the central bank has done a fantastic job of balancing the need to manage inflation, which has been stubborn in the last couple of months, while at the same time taking care of growth. "A lot of analysts were talking about RBI being behind the curve considering the inflation trajectory. RBI is worried about inflation and hence has raised the reverse repo rate -- the rate at which you will lend money to RBI. On the other hand, they are also balancing growth concerns by increasing the repo rate by only 25 bps."