WEAKNESS

Benchmarks continue trading in the negative territory amid European Union leaders agreeing on a limited fiscal union among member nations, by sealing a new accord for budget discipline. Sensex plunges by around 230 points in afternoon trade, while Nifty continues to remain weak. Meanwhile, RBI is looking for inspection of associate firms of banking companies before giving banking license. On sectoral front, stocks from the health care space were edged up from their lows, while all other sectors were trading in red. Capital goods, automobile, power and oil stocks are among the prominent losers. On the global front, markets in the Asia-Pacific region were witnessing selling pressures on worries about the financial situation in Europe. Back home, the market breadth favoring the negative trend; there were 849 shares on the gaining side against 1,468 shares on the losing side while 92 shares remained unchanged.
The BSE Sensex is currently trading at 16,257.93, down by 230.31 points or 1.40%. The index has touched a high and low of 16,334.85 and 16,153.97 respectively. There were 3 stocks advancing against 27 declining ones on the index.
The broader indices trimmed down some of its losses; the BSE Mid cap and Small cap indices were down by 0.65% and 0.67% respectively.
The only gainer on the BSE sectoral space was Health Care (HC) up by 0.31%, while CG down by 2.15%, Auto down by 1.98%, Power down by 1.68%, Oil & Gas down by 1.60% and Metal down by 1.38% were the top losers on the sectoral space.
The top gainers on the index were Coal India up by 0.30%, TCS up by 0.23% and Cipla up by 0.06%.
On the flip side, BHEL down by 3.22%, Sterlite Industries down by 3.05%, Bajaj Auto down by 2.97%, JP Associate down by 2.63% and M&M down by 2.62% were the top losers on the index.
Meanwhile, the Reserve Bank of India (RBI) is mulling a cut in cash reserve ratio (CRR), among other things, in the midst of tight liquidity in the money market and rising demand for easing of monetary conditions to face economic slowdown. The RBI deputy governor Subir Gokarn said, 'there is a lot of debate over CRR cut. It's under consideration. Excessive borrowing through liquidity adjustment facility (LAF) is beyond our comfort level. We do think excessive withdrawal from LAF may be stressful for banks even if it may not strain the system as a whole.'
The demand for monetary action by the RBI is gaining impetus despite the central bank's stated anti-inflation stand. With economic growth slowing and a possible risk of contagion from euro-zone increasing, it is believed that there could be some monetary action by the central bank. Further, the liquidity condition in the system is also under pressure with banks borrowing considerably more from the LAF, of RBI than what it desires.
Banks have been withdrawing an average of Rs 1 lakh crore on a daily basis from the central bank since November 24, 2011 using the LAF window at 8.5% repo rate. However, the regulator's comfort level is 1% of net demand and time liabilities (NDTL), which is about Rs 60,000 crore. The above average borrowing has fuelled speculation that the apex bank may cut CRR by 50 basis points from 6% to inject liquidity into the system. Moreover, the RBI's mid-quarter policy review is scheduled on December 16.
Though, Gokarn retained that CRR is a monetary tool - intended to display its stance on direction of interest rate, rather than one to manage the liquidity in the system. He said, 'whether using an instrument that is part of monetary toolkit to address liquidity issue is certainly a debate, which we have to engage in.'

However, analyst are of the view that a repose in the reserve ratio may not be used, as inflation is still quite high and there are no signs of moderation, although food prices have started showing signs of a decline after 38 months. On this Gokarn said, the RBI will persist to do more open market operations to infuse liquidity and the third one is lined up on December 08 to release Rs 10,000 crore in the system.

The S&P CNX Nifty is currently trading at 4,876.45, down by 67.20 points or 1.36%. The index has touched a high and low of 4,902.10 and 4,843.40 respectively. There were just 6 stocks advancing against 44 declining ones on the index.
The gainers of the Nifty were Dr Reddy up by 1.70%, BPCL up by 1.29%, Coal India up by 0.30%, TCS up by 0.16% and Reliance Communication up 0.13% remained the only gainers.
While, SAIL down by 3.54%, Sterlite Industries down by 3.34%, Bajaj Auto down by 3.10%, BHEL down by 3.08% and JP Associates down by 2.86% were the major losers on the index.
All the Asian markets were trading in the red; Shanghai Composite declined 0.55%, Hang Seng plunged 2.43%, Jakarta Composite descended 1.03%, KLSE Composite shed 0.97%, Nikkei 225 lost 1.37%, Straits Times plummeted 1.38%, Seoul Composite surrendered 1.81% and Taiwan Weighted was down by 1.28%.