Government's relaxation of foreign investment rules, aimed at drawing funds needed to turn around slowing economic growth and support a crumbling rupee, barely lifted markets today due to doubts whether long-term inflows would materialise anytime soon.
Sensex and the Nifty were volatile today but closed almost flat, shrugging off earlier gains, a day after the government relaxed FDI cap norms in various sectors.
The Sensex closed up 0.38 percent at 19926, the Nifty closed up 0.19% at 5973. While losses in banks, mainly ICICI Bank and HDFC Bank pulled markets lower, FMCG index was the best performer among the indices and gained 3.8 percent today, with HUL surging more than 11 percent in trade and ITC hitting record highs on good monsoons.
FMCG, IT, Consumer Durables, Teck and Power are the gainers, while Bankex, Metal, Auto, PSU, Realty, Capital Goods, Healthcare and Oil & Gas are showing some weakness.
The partially convertible rupee is currently trading firm at 59.57 against the dollar. It had opened at 59.19 today.
According to brokerage Nomura, capital inflows will make a return to the Indian markets next year over easing of FDI caps. However,it doesn't change the fundamentals that determines whether it is a good idea to put money in India in the first place.
Although the government hopes its latest reforms attract long term capital flows, previous measures have had mixed results, and FDI fell to $36.9 billion in the fiscal year ending in March from $46.6 billion the previous year.
Meanwhile, the RBI said that it would provide fund managers with critical access to special funding as the mutual fund sector faces a surge in redemption requests.
The temporary, three-day repo borrowing window for mutual funds will make up to Rs 25000 crore vailable to asset management companies at 10.25% interest, according to a notification issued on Wednesday.
Further details will be provided at a later date, the Reserve bank of India (RBI) said.
Whilst the repo rate remains unchanged at 7.25%, global developments and rupee trends will weigh on future monetary policy direction. Any change in benchmark interest rates would depend on the effectiveness of these measures in stemming the rupee decline, Santosh Kamath, CIO-Fixed Income, Franklin Templeton Investments, said.
On the equity side, the move will impact wholesale funded banks and leveraged companies as well as banks with asset quality issues. We are likely to witness further measures to fund CAD and boost foreign inflows including a separate window for oil importers, he added.
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HDFC Bank was down 4 percent after it reported a 30% rise innet profit of Rs 1844 crore for the first quarter of FY14.
HUL closed 9 percent higher.The FMCG major has hiked prices of selective personal care products. HUL is active ahead of MSCI and FTSE rebalancing. MSCI rebalancing is effective from today while FTSE rebalancing is effective from July 19.
With inputs from Reuters
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