Sensex Slips Close To 2-Week Low; Nifty Ends Below 8,100
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RBI Gets More Flexibility To Mop Up Surge In Liquidity
The Reserve Bank of India (RBI) is expanding the tools at its disposal to suck out the surge of liquidity in the banking sector following the government’s decision to scrap Rs 500 and Rs 1000 notes.
On Friday, the central bank said that the government has raised the limit for issuing market stabilization scheme (MSS) bonds to Rs 6 lakh crore compared to Rs 30,000 crore earlier.
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Indian shares dropped the most in nearly two weeks tracking weakness in global equities.
The Sensex lost nearly 1.2 percent to 26,241 while the Nifty dropped 1.3 percent to 8,085. This was the biggest single day drop for the indices since November 21. With this, both the key benchmarks have pared their weekly gains and are down 0.4 percent after gaining nearly 1 percent up until Thursday.
The market breadth was firmly in favour of the sellers at close with 1,182 stocks declining, 295 advancing 295 and 65 remaining unchanged.
Since morning, the market was following as per the rising global anxiety over today’s US employment data and the forthcoming Italian constitutional referendum. While RBI’s market stabilisation scheme (MSS) to suck the excess liquidity in the system provided some short-lived relief to banks. But the ongoing GST councils meet and the issues related to dual control & the road map to the implementation disrupted the investors’ mood.”Vinod Nair, head of research, Geojit BNP Paribas Financial Services said in a email.
Next week is likely to remain volatile as the focus shifts to key global events like U.S. Federal Reserve policy meet and the Italian referendum. According to Avinash Gorakshakar, head of research at Moneylicious Capital Advisory Services, a negative surprise could lead the Nifty testing the Brexit low of 7,927.
Locally, the RBI policy meet on December 7 will also be keenly watched. While the market has factored in a 25 basis point rate cut, a pause by the central bank, reacting to a Fed decision, could lead to further downside, said Gorakshakar.
The entire game is now based on liquidity; whether we see it coming in after the rate hike by Fed does happen. We are likely to see a selloff in Indian equities post the Fed hike; likewise, in gold.Gorakshakar told BloombergQuint.
Gorakshakar advises investors to be in a “wait and watch” mode for a week or so until the dust settles.