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Market witnessed correction on Friday after benchmark indices ended lower post three consecutive days of record highs.
Domestic equities remained rangebound through the day, erasing all early gains after the Reserve Bank of India while maintaining interest rate status quo, has revised retail inflation projection for FY 22 to 5.7 per cent from 5.1 per cent. This has raised concerns at some quarters as they believe the central bank may end its easy rate policy.
Indices were dragged by rate-sensitive sectors such as banking and realty. Selling pressure on pharma sector and index heavyweight Reliance further impacted the market.
The BSE Sensex closed at 54,277.72, down 215.12 points or 0.39 per cent. It hit an intraday high of 54,633.58 and a low of 54,210.33. The Nifty 50, which moved between 16,336.75 and 16,223.30, closed near the day’s low at 16,238.20, down 56.40 points or 0.35 per cent.
Breadth turns positive
The breadth of the market remained turned positive despite indices ending lower, with 1,821 stocks advancing, 1,391 declining and 117 remaining unchanged on the BSE. Furthermore, 354 stocks hit the upper circuit, while more than 250 stocks locked in the lower circuit. Besides, 291 stocks touched 52-week high level and 16 touched a 52-week low.
According to Vinod Nair, Head of Research at Geojit Financial Services, "Following a flat opening, the domestic market fell into the red as profit booking was witnessed in key sectors like Banking after the announcement of RBI monetary policy.”
“Negative cues from Asian markets also added pressure on the domestic market. The policy was in line with market expectations, RBI continued to advance its super-easy monetary policy keeping its focus on economic recovery. On the side-line, the CPI forecast was increased to 5.7 per cent from 5.1 per cent for FY22. High global inflation has started to impact other emerging markets’ monetary policy & currencies, some have increased rates while others are planning to increase the rates in the future,” added Nair.
IndusInd Bank, Adani Ports, IOC, Tech Mahindra and Tata Consumer were the top gainers on the Nifty 50 while Cipla, Reliance, Shree Cements, UltraTech Cement and Tata Steel were the top laggards.
RBI is also planning to conduct four variable reverse repo rate (VRRR) auctions in the fortnight beginning August 13 till September 24, to absorb surplus liquidity from the banking system. The quantum of VRRR will increase by ₹50,000 crore with each auction. The first VRRR will be for ₹2.50 lakh crore, the second (on August 27) will be for ₹3 lakh crore, the third (on September 9) will be for ₹3.5 lakh crore, and the fourth will be for ₹24 lakh crore.
RBI Governor Shaktikanta Das, however, underscored that the VRRR auctions should not be misread as a reversal of the central bank’s accommodative monetary policy stance.
“We view this policy as RBI’s signal that it remains watchful on growth while the concern on inflation has increased,” said Sujata Guhathakurta – President & Business Head, Debt Capital Markets at Kotak Mahindra Bank
Unmesh Kulkarni – Managing Director Senior Advisor, Julius Baer India, said, “While the accommodative stance continues for now, the RBI’s higher inflation projection (compared to market expectations), along with the enhanced VRRR auctions, is likely to put some upward pressure on yields, especially at the short-end.”
Auto, IT and metals in focus
On the sectoral front, financials, pharma and realty stocks remained under the pressure of profit-booking as auto, IT and metals gained.
Nifty Auto was up 0.24 per cent at closing while Nifty Metal was up 0.12 per cent. Nifty IT was up 0.30 per cent.
Meanwhile, Nifty Bank was down 0.07 per cent. Nifty Financial Services was trading 0.33 per cent lower.
However, Nifty Private Bank recovered in the second half to end 0.24 per cent higher.
Nifty Pharma was down 0.43 per cent while Nifty Realty was down 0.96 per cent.
Broader indices
As for the broader indices, Nifty Midcap 50 was down 0.14 per cent at closing while Nifty Smallcap 50 was down 0.30 per cent.
The S&P BSE Midcap, however, was up 0.23 per cent while the S&P BSE Smallcap was up 0.28 per cent.
The volatility index was at 12.61, down 2.05 per cent.
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