The BSE Sensex and NSE Nifty ended the week on a positive note with a gain of over 1 per cent. During the week, the Reserve Bank of India cheered investors by reducing repo rate by 50 basis points to 6.75 per cent from 7.25 per cent earlier. (Photo: PTI)

The BSE Sensex and NSE Nifty ended the week on a positive note with a gain of over 1 per cent. During the week, the Reserve Bank of India cheered investors by reducing repo rate by 50 basis points to 6.75 per cent from 7.25 per cent earlier. However, the central bank kept the cash reserve ratio unchanged at 4 per cent of net demand and time liability (NDTL).

Sensex closed the week 357.45 points, or 1.38 per cent, up at 25863.50. Nifty gained 82.40 points, or 1.05 per cent, at 7950.90.

The broad dynamics across sectors looked lacklustre; banks notably lagging behind. Among the sectoral indices on the Bombay Stock Exchange, the BSE Consumer Durables index, BSE Realty index and BSE FMCG index gained 3.87 per cent, 3.23 per cent and 2.60 per cent, respectively, during September 24 and October 1. BSE Metal and BSE Bankex lost 0.90 per cent and 0.45 per cent, respectively, during the week.

In the 30-share Sensex pack, Dr Reddy’s Laboratories surged the most — 6.51 per cent to Rs 4,230.05 for the week ended October 1, followed by Lupin (up 5.91 per cent), HUL (up 5.91 per cent), Coal India (up 3.01 per cent) and Reliance Industries (up 2.91 per cent). On the other hand, share price of Vedanta declined 12.42 per cent to Rs 83.55 on October 1 from Rs 95.40 on September 24. Other stocks such as Axis Bank, Tata Motors and State Bank of India plunged 3.54 per cent, 2.19 per cent and 1.57 per cent, during the week.

Maruti Suzuki India, Can Fin Homes, Ceat, Cadila Healthcare, FDC, Mindtree, 3M India and Aarti Industries hit their new all-time high during September 24 and October 1.

Anand James, co-head technical research desk, Geojit BNP Paribas, said, “Now that the rate decision has been settled in market’s favour, the focus would be more on earnings play in the week ahead.”

Indian rupee appreciated around 0.82 per cent in the week under review. It jumped to 65.55 levels on October 1 from 66.09 on September 24.

Gaurav Jain, director, Hem Securities, said, “A sharp repo rate cut by the central bank was the key trigger for the rally in the Indian indices. Firm global markets, strengthening of rupee and renewed buying interest were some factors bolstering the sentiments of the street. However, US Federal Reserve chairman Janet Yellen speech which hinted possibilities of a rate hike at the end of the year capped the gains in the truncated week.” Domestic equity markets are closed on Friday on account of Gandhi Jayanti.

The month of September saw FIIs outflow of Rs 5,900 crore while domestic institutional investors investors counterbalanced with inflow of Rs 7,070 crore thus drastically reducing the selling pressure in the market.

On the economy front, the growth of eight core sectors slowed down to 2.6 per cent in August mainly due to contraction in steel output. The expansion in eight infrastructure sectors, which contribute about 38 per cent to the overall industrial production, was 5.9 per cent in the same month last year.

For the coming week, Jimeet Modi, CEO, SAMCO Securities, said, “Markets will watch the corporate scorecard. The mood of the market will remain buoyant in view of rate cuts and assurances from the government that they too will deliver in terms of reform agenda. Indian markets are slowly decoupling and turning out to be resilient, even the rupee has stabilised and appreciated somewhat while other currencies are still languishing.”

Private sector lender ICICI Bank on Thursday reduced its base rate by 35 basis points to 9.35%, which will be effective October 5.

The move came even as Dena Bank, Allahabad Bank, SBBJ, YES Bank, Kotak Mahindra Bank, Syndicate Bank and Karnataka Bank also trimmed their base rates by 25/30 basis points in the wake of the Reserve Bank of India’s surprise repo rate cut by 50 bps in Tuesday’s credit policy.

Kotak Mahindra Bank on Thursday reduced its base rate from 9.75% to 9.50% with effect from October 5 according to the bank’s filing on the BSE. All categories of loans (other than the exceptions permitted by the RBI) will be priced with reference to the revised base rate, it added.

Dena Bank also reduced its base rate by 30 bps to 9.7% from 10% with the new rate being applicable from October 5. “Almost 80% of our advances are linked to base rate so there would be an impact of 20-25 bps on our margins,” executive director RK Takkar said.

Yes Bank has also trimmed its base rate by 25 bps to 10.25% with the revised rate being effective October 5. Syndicate Bank said its base rate has been revised from 10% to 9.7%, effective October 1, while Karnataka Bank slashed its rate by 25 bps to 10.25%, effective October 5.

SBI associate State Bank of Bikaner & Jaipur (SBBJ) also reduced its base rate to 9.7% from the existing rate of 9.95% while Allahabad Bank slashed its base rate by 25 bps to 9.7%.

Other banks that have so far cut rates include SBI, PNB, Bank of Baroda, Bank of India, Andhra Bank, IDBI Bank, Axis Bank and Oriental Bank of Commerce. As of now, the country’s largest lender SBI has the lowest base rate in the banking system at 9.30%.

The RBI has been pushing for a better transmission of rate cuts through the banking system. So far, the central bank has cut the repo rate by a total of 125 basis points in the calendar year 2015.

=MONEY market rates have hit multi-year lows after the surprise 50-basis-point rate cut by the Reserve Bank of India (RBI) in the September 29 credit policy.

Call money rate, or the overnight rate at which banks lend money to each other, hit 6.77% on Tuesday, which is the lowest since late July 2013.

Commercial paper (CP) — money market instruments issued by corporates to raise short-term funds — rates have come down by at least 30 bps since the repo rate was reduced on Tuesday.

Bloomberg data show that Exim Bank issued two-month CPs at a yield of 7.10% on Thursday whereas it paid 7.42% for the same tenure on September 24 — indicating a 32-bps fall in the yields after the repo rate cut.

Data also show that Steel Authority of India (SAIL) issued two-month CPs at 7.08% on Thursday while it had paid 7.48% for a similar-tenure paper on August 20.

Lakshmi Iyer, CIO debt & head products, Kotak Mahindra AMC, confirms that after the 50-bps rate cut, yields on commercial papers and certificate of deposits have come down by at least 30-40 bps.

“The entire yield curve is between 7% and 7.25% at the shorter end as of now as the overnight rates have hit as low as 6.75%,” Iyer added.

Interest rate derivatives are also seeing movements after the fall in interest rate. The one-year overnight indexed swap (OIS) rate hit 7.03% on Tuesday, marking the lowest level since January 2011.

This fall in rates reflects an immediate transmission of rate cut to the money market yields unlike in the case of banks where the base rates are still to catch up with the momentum of the 125-bps cut in the repo since the beginning of 2015.

So far, major banks have cut their base rates by as much as 50-70 bps since the beginning of 2015 where as money market rates have seen almost a 120-bps fall.

Bloomberg data show Axis Bank issued a one-year CD at a rate of 7.35% on Thursday whereas it paid 8.51% for the same tenure in early January — a 116-bps fall.

The RBI has been asserting the need for further transmission of rate reduction through the banking system. In its September policy, the central bank had said that markets have transmitted the past policy actions via commercial paper and corporate bonds, but banks have done so only to a limited extent.

“The median base lending rates of banks have fallen by only about 30 bps despite extremely easy liquidity conditions. This is a fraction of the 75 bps of the policy rate reduction during January-June, even after a passage of eight months since the first rate action by the Reserve Bank,” the central bank said in the policy statement.

Following Tuesday’s 50-bps cut in the repo and the governor’s push for further transmission of this reduction in rates, banks have now begun another round of base rate reduction. The country’s largest lender, State Bank of India, reduced its base rate by 40 bps to 9.30% on Tuesday with many other banks following suit.

With the latest downward correction in rates, market experts believe some sectors that have remained inactive in the CP market may now try to make a come back.

“Because of easing rates, many of the manufacturing sector NBFCs are likely to start approaching the CP market. You may see some sort of pick-up in the activity here, which had seen a slowdown over the past couple of months,” Iyer said.

To boost Indian entrepreneurship and prevent them from shifting their businesses to foreign countries, Sebi on Thursday allowed Alternative Investment Funds (AIFs) and Venture Capital Funds (VCFs) to invest 25% of their funds in foreign companies having an Indian connection.

Until now, India-based VCFs could invest only 10% of their funds in Offshore Venture Capital Undertakings, while AIFs had no specific guidelines in place with regard to the quantum of such investments. Such entities include companies having a front office overseas, but back office operations in India.

Sebi said that AIFs can invest in equity and equity-linked instruments of offshore venture capital undertakings with Indian connection, subject to an overall limit of $500 million (combined limit for AIFs and VC Funds registered with Sebi).

The regulator has put necessary safeguards for investors by requiring greater disclosures about associates and managers of AIF.

Sebi had proposed to raise the limits in April-end after it received representations from the industry, indicating a major shift of Indian entrepreneurs outside India. Many Indian entrepreneurs were setting up their headquarters outside India with backend operations and/or R&D being undertaken in India.

Representations stated that an increase in investment would provide opportunities to the funds to generate better returns globally, in addition to generating indirect benefits to India by bringing in non-debt creating foreign capital resources, technology upgradation, skill enhancement, and new employment among other things.

“There was a need to allow higher overseas investment by VCFs,” Sebi had stated in its consultation paper in April.

As such investments are required to have an Indian connection, it is anticipated that they will generate indirect benefits to India through bringing in resources, technology upgradation, skill enhancement, new employment and spillovers, among others, Sebi said.

It said VCs and AIFs planning to make investments in offshore venture capital undertakings are required to submit their proposal for investment to the markets regulator for approval.

In case of AIFs, Sebi said that no separate permission from RBI is necessary in this regard.

VCFs and AIFs will not invest in joint venture/wholly owned subsidiary, while making overseas investments.

These funds will have to “adhere to Fema Regulations and other guidelines specified by RBI from time to time with respect to any structure which involves FDI under Overseas Direct Investment route”.

With regard to AIFs, Sebi said allocation of investment limits would be done on ‘first come first serve’ basis, depending on the availability in the overall limit of $500 million. In case an AIF, who is allocated certain investment limit, wishes to apply for allocation of further investment limit, the fresh application will have to be dealt with on the basis of the date of its receipt and no preference will be granted to it in fresh allocation of investment limit.

The AIF will have six months from the date of approval from Sebi to make allocated investments in offshore venture capital undertakings. In case the applicant does not utilise the limits allocated within the stipulated period, the markets watchdog may allocate such unutilised limit to other applicants.

Shares of HCL Technologies slumped 15% on Thursday after the IT services firm said it expects revenues for the September quarter to be ‘tepid’, impacted by adverse currency movement and issues with a client in the public services vertical. The stock settled R124.25 or 12.65% lower at R857.90 at BSE. HCL Tech shares declined the most on MSCI Asia-Pacific Index, CNX Nifty, S&P BSE 100, S&P BSE 200, S&P BSE 500, S&P BSE IT indices.

More than 1.46 crore shares exchanged hands on BSE and NSE, nine times its three-month average daily volume. The country’s fourth-largest software services firm, which follows the July-June fiscal, will announce its earnings for the July-September 2015 quarter in the fourth week of October. “The revenue growth is likely to be tepid on account of adverse currency impact; a client specific issue and; skewness in revenue growth due to transition timelines for complex engagements particularly in Infrastructure Services,” it had said in a filing to the BSE.

For the quarter ended June 2015, the company’s revenues stood at R4,465.50 crore, while for financial year 2014-15, it was R17,153.44 crore.

HCL Tech’s red flag may lead to a sub-par performance for the third straight quarter, according to Deutsche Bank note. Consistent disappointment on revenue and profitability will lead to de-rating of stock, Deutsche Bank’s technology analyst Aniruddha Bhosale stated in a report.

The Noida-based firm said during the quarter, revenues to be reported in US dollar would have an adverse impact of 80 bps on account of sharp depreciation of multiple currencies against the greenback.

While HCL Tech shares took a beating, rival companies TCS and Infosys gained 1-2% each. Wipro ended with 0.3% gains after rising more than 2%.According to Barclays, HCL Tech’s profit warning is company specific and the guidance is unlikely to have a negative impact on the sector. The negative outlook may lead to a cut in FY16 USD revenue and EPS growth estimates by 2% and 2.5%, Barclays analysts Bhuvnesh Singh and Saurabh Mishra stated in a note.