Sensex Finishes Flat, RBI Maintains Status Quo on Repo Rate

Thu, 6 Apr Closing

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Indian share markets finished the trading day on a flat note after RBI maintained 'status-quo' in its 1st bi-monthly monetary policy review of FY18. At the closing bell, the BSE Sensex closed lower by 47 points, whereas the NSE Nifty finished lower by 3 points. The S&P BSE Midcap ended up by 0.2% while the S&P BSE Small Cap Index ended down by 0.2%.

Sectoral indices ended on a mixed note with consumer durables sector & fast moving consumer goods sector leading the losses. Gains were largely seen in realty sector and oil & gas sector.

Asian equity markets finished mixed as of the most recent closing prices. The Shanghai Composite gained 0.33%, while the Nikkei 225 led the Hang Seng lower. They fell 1.40% and 0.52% respectively. European markets are lower today with shares in London off the most. The FTSE 100 is down 0.60% while Germany's DAX is off 0.49% and France's CAC 40 is lower by 0.18%.

The rupee was trading at Rs 65.04 against the US$ in the afternoon session. Oil prices were trading at US$ 51.18 at the time of writing.

The Reserve Bank of India (RBI) announced its first bi-monthly monetary policy statement for 2017-18 today. The RBI left repo rate unchanged at 6.25% but hiked reverse repo rate to 6% from 5.75%. While, the Cash Reserve Ratio (CRR) remains unchanged at 4%.

The repo rate at 6.25% level is quite reasonable we believe. As the chart below shows, the repo rate has fluctuated in a range over the last six years. It is back to where it was in November 2010. The last change was a cut to 6.25% last October.

The move comes as RBI continues to guard against any potential flare-up in inflation and an uncertain global economic environment.

As per RBI, gross value added (GVA) growth is projected to strengthen to 7.4% in 2017-18 from 6.7% in 2016-17. Several favourable domestic factors are expected to drive this acceleration. Further, the marginal standing facility (MSF) rate and the Bank Rate are at 6.50%.

The decision of the committee is consistent with a neutral stance of monetary policy in consonance with the objective of achieving the medium-term target for consumer price index (CPI) inflation of 4% within a band of +/- 2%, while supporting growth.

The review comes in the backdrop of the likelihood of 'El Nino' disrupting monsoon rainfall and exerting upward pressure on food prices, and rising global oil and commodity prices, the reports noted. The RBI has however hiked its outlook for GDP growth to 7.4% in this fiscal from 6.7% last year. Inflation is expected to average around 4.5% in the first half and 5% in the second half.

However, the most significant part of today's money policy review was the move to allow banks to invest in real estate investment trusts (REITs), which is seen as a huge positive for the real estate sector. As a result, DLF, Prestige Estates, Unitech, and Godrej Properties, among others surged between 1 and 6% intraday.

RBI Governor, Urjit Patel said the objective is to align money market with the money policy stance. He also stated that there is a need to manage liquidity for three-four quarters and may also go for open market operations, if necessary, to address the situation. The central bank expects the situation to normalise in three to four quarters.

After all, monetary policy alone cannot speed up the economic slowdown caused by notebandi-led cash shortage, and consumption reduction. To set the paralyzed demand into motion, a lot many things needs to be done on the ground.

Moving on to the news from stocks in pharma sector. According to a leading financial daily, Cipla's wholly owned subsidiary in USA, Cipla USA Inc., has signed a worldwide licensing agreement (except for East Asia) with MEDRx Company (MEDRx).

The companies together will further develop and commercialize MRX-4TZT, a Tizanidine patch for the management of Spasticity. Spasticity is a condition in which certain muscles are continuously contracted.

Under the terms of the agreement, MEDRx is eligible to receive up to US$30 million cumulatively through upfront and developmental, regulatory, and commercial milestones payments.

Further, MEDRx will also receive tiered royalties on the net sales of commercialized licensed products. The company plans to initiate phase III clinical trials after completion of additional phase I studies.

Moreover, annual sales of muscle relaxants in the United States were estimated at US$ 807 million in 2016, as per IMS health sales 2016 data. Going forward, whether this deal help address significant unmet needs of the patients globally and help Cipla widen its footprint will be the key thing to watch out for.

Cipla share price ended the day down by 0.6%.

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