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RBI disappoints markets
Tue, 30 Oct 01:30 pm

The Indian markets continued to trade deep in the red during the post noon trading session. While stocks from the IT sector have managed to keep their heads above water, selling activity is being witnessed across the board with stocks from the realty, banking and capital goods spaces being the top underperformers.

The Sensex today is trading lower by about 200 points (down 1.1%), while the NSE-Nifty is trading lower by about 70 points (down 1.2%). Stocks from the midcap and smallcap spaces are also trading weak with the BSE Mid Cap and BSE Small Cap indices trading lower by 1.1% each. The rupee is trading at 54.1 to the US dollar.

Stocks of engineering companies are trading weak led by Bharat Electronics, Thermax and Larsen & Toubro (L&T). Bharat Heavy Electricals Limited (BHEL) announced its results for the quarter and half year ended September 2012 recently. During 2QFY13, the company reported a sales growth of about 1.0% YoY in 2QFY13, while net profits declined by about 10% YoY. At the operating level, its profits increased by 2.0% YoY with operating margins increased marginally to 18.0% during the quarter. However, higher interest costs and depreciation costs coupled with lower other income led to a decline in profits as compared to the corresponding quarter last year. At the end of the quarter, the company's order book stood at Rs 1.2 trillion.

The RBI's concern over inflation led it to keep the repo rates unchanged at 8%, thereby not obliging with the government's expectations of lowering the key rates. However, the cash reserve ratio (CRR), the amount of money parked by banks with the Reserve Bank of India (RBI), has been lowered to 4.25% from 4.5%. This 25 basis point reduction in CRR is expected to infuse about Rs 175 bn liquidity into the system. In its guidance, the RBI stated that the reduction in CRR is towards tightening liquidity conditions, thereby keeping liquidity comfortable to support growth. The central bank also hinted towards further policy easing in the last quarter of the current year, depending on the inflation numbers. With this development, banking stocks are trading weak with Oriental Bank, Bank of Baroda and Canara Bank leading the pack of underperformers.

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