Mumbai: The BSE Sensex ended flat on Monday, as gains in some interest rate-sensitive stocks such as ICICI Bank and DLF, a day before the RBI is widely expected to ease monetary policy, were offset by profit-taking in oil and gas stocks. Investors are widely anticipating the Reserve Bank of India will cut interest rates by 25 basis points on Tuesday, easing for the first time since April 2012, after December inflation eased to a three-year low.
The prospect of rate cuts, along with continued fiscal reforms from the government, have sparked solid gains in shares in January, leaving markets vulnerable to a selloff should the RBI surprise by keeping rates on hold. The Sensex has gained 3.5 per cent so far in January, thanks in a large part to continued strong foreign buying.
Foreign institutional investors have bought $3 billion in the first 23 days of the month, marking a record high for that time period, according to a Goldman Sachs report on Monday. The RBI decision comes ahead of what is expected to be a volatile week, with continued earnings results and the expiry of derivatives on Thursday, while the Federal Reserve is set to conclude its two-day meeting on Wednesday.
"The market has already priced in a rate cut of at least 25 basis points," said Dipan Shah, head of research at Kotak Securities. The post-policy market will be driven by October-December earnings, the Fed meeting announcement on Wednesday and derivatives expiry in near term, Shah added.
The benchmark Sensex ended flat at 20,103.35 points, while the broader Nifty ended unchanged at 6,074.80. Private sector banks led the gains, with ICICI Bank ending 1.5 per cent higher, gaining 4.6 percent in 2013.
Shares in Axis Bank Ltd gained 1.9 per cent on expectations that its up to $1 billion share sale, expected as early as on Monday, will attract solid demand. Yes Bank Ltd shares rose 3.8 per cent after Nomura upgraded the stock to "buy" from "neutral", saying the 146 new branch licenses it was granted by the RBI should help improve returns on assets.
Real estate developer DLF rose 2.7 per cent while Unitech Ltd also ended 2.3 per cent higher on hopes a potential rate cut would help sales in the sector. Among other gainers, Maruti Suzuki India Ltd gained 0.5 per cent after UBS upgraded its ratings to "buy" from "neutral," noting the weakening Japanese yen over the past three months would boost earnings.
Maruti said on Friday its third quarter profit more than doubled. MCX-SX rose 3.4 per cent, after it said in a statement that it will begin trading of cash equities and equities derivatives on February 11.
However, among stocks that fell, oil and gas stocks declined on profit-taking, with ONGC falling 1.8 per cent, having gained 27.3 per cent in January after the government's move to allow higher diesel prices and due to expected changes to gas pricing.
Reliance Industries fell 1.6 per cent after gaining 8.65 per cent in January, on a better-than-expected 24 per cent jump in third-quarter net profit. Among other decliners, Idea Cellular Ltd shares fell 0.5 per cent a day ahead of its October-December quarter earnings.
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