Rate cut comes with a 'but'

The markets gained on three of the four trading sessions and lost ground only post the RBI announcement of the credit policy. The BSESENSEX gained 288.92 points or 1.50 per cent to close at 19,575.64 points. The NSENIFTY gained 72.55 points or 1.24 per cent to close at 5,944 points.

The Reserve Bank of India (RBI) cut repo and reverse repo by 25 basis points for the third time this calendar year, bringing the total cut to 75 basis points. Pic/AFP

The broader indices showed similar gains with the BSE100, BSE200 and BSE500 gaining 1.66 per cent, 1.61 per cent and 1.57 per cent respectively. The BSEMIDCAP gained 1.61 per cent while BSESMALLCAP gained 0.14 per cent. BSEFMCG was the top gainer up 7.53 per cent.

Other gainers included BSEIT up 4.74 per cent, BSECAP up 2.12 per cent and BSECONSUMER up 1.83 per cent. BSEBANKEX lost 1.11 per cent while BSEPSU was down 0.43 per cent and BSEAUTO was down 0.16 per cent. In individual stocks, Hind Unilever was the top gainer up 23.06 per cent after the parent company announced its offer to acquire 22.5 per cent to raise its shareholding to 75 per cent at a price of R600 per share.u00a0

This offer would entail an investment of USD 5.4 billion. Other gainers included United Spirits up 10.75 per cent, Wipro up 7.71 per cent, Sterlite up 7.69 per cent and Mahindra and Mahindra up 7.63 per cent. The losers were led by Chambal Fertilisers down 9.78 per cent, Canbank down 6.36 per cent and Bajaj Auto down 4.29 per cent.

Credit
The week saw plenty of action and drama, with the highpoint being the RBI's credit policy. It was on expected lines. RBI cut Repo and Reverse Repo by 25 basis points for the third time this calendar year, bringing the has total cut to 75 basis points. The SBI Chairman has already stated that it would be difficult for them to cut bank rates which means that banks would benefit from the entire cut amount over three periods and might not pass the benefit to the borrowers.u00a0

The other announcement made by RBI was about allowing FIIs and business houses to hedge their currency exposure through currency derivatives. This would benefit currency futures volumes and hence the exchanges. MCX was a beneficiary on Friday and the stock gained R63.70 or 6.85 per cent.

FIIs
Bharti Airtel has sold 5 per cent to Qatar Foundation for USD 1.26 billion. The company would issue 199.9 million new shares at R340 per share. Shares of Bharti gained a rupee on Friday but were down Rs 0.70 for the week at Rs 317.70. FIIs made purchases of Rs 3,400 crore while domestic institutions were sellers of Rs 1,943 crore.

In April, FIIs pumped in USD 950 million or Rs 5,145 crore,while domestic institutions sold shares worth Rs 1,628 crore. There is a big difference in the domestic provisional numbers declared by the exchange which includes the trading done by LIC while the figures reported by SEBI exclude LIC trading. The Indian Rupee gained 0.83 per cent to close at 53.93 against the USD.

Finance Minister P Chidambaram stated that Tax Residency Certificate (TRC) would suffice as proof of the investment made by foreign investors. This puts to rest for the time being the contentious issues under GAAR. The second positive development for FIIs was the reduction in withholding tax from 20 per cent to 5 per cent for investment in debt instruments. This is likely to see higher FII inflows into debt in the near future.

Parliament
It looks unlikely that anything would happen in Parliament in the last week of the session. The JPC on 2G, coalgate and now the scam concerning the Railway Minister will keep Parliament on its toes. Meanwhile, the CBI chief will submit his affidavit today to the Supreme Court and the SC is expected to issue instructions on Wednesday. Results for Karnataka Assembly elections will also be declared on Wednesday. We have had a good rise in the markets over the last three weeks which have seen the benchmark indices rise by over 8.5 per cent. Result season so far has been good but signs of strain are visible.u00a0

World
In the US, the Dow Jones continued to rise and closed at 14,974 points. The US FED has decided to continue with their Quantitative Easing and would buy USD 40 billion of T Bills every month. The European Central Bank cut interest rates by a quarter of a per cent to 0.50 per cent.

Key levels for the SENSEX are 19,300 and 19,800 while similar levels for the NIFTY are 5,775 and 6,025. The BSESENSEX has support at 19,497 points, then at 19,309 points, then at 19,065 points and finally at 18,801 points. It has resistance at 19,699 points, then at 19,816 points, then at 19,901 points and finally at 20,185 points. The NSENIFTY has support at 5,916 points, then at 5,868 points, then at 5,789 points and finally at 5,716 points. It has resistance at 5,987 points, then at 6,019 points, then at 6,056 points and finally at 6,115 points.

Arun Kejriwal is founder of the Mumbai-based advisory firm Kejriwal Research & Investment Services Pvt Ltd. Readers are invited to read more about these and other issues on his website https://ak57.inu00a0