Sensex, Nifty hit lowest closing level in almost a week
Losses for banking sector stocks and public sector companies led losses for key benchmark indices. The barometer index, the S&P BSE Sensex, shed 378.61 points or 1.59% to settle at 23,410.18. The losses for the 50-unit Nifty 50 index were higher in percentage terms than those for the Sensex. The Nifty fell 125 points or 1.73% to settle at 7,109.55. The Sensex and the Nifty extended losses in late trade. The Sensex and the Nifty, both, hit their lowest closing level in almost a week. The two key benchmark indices snapped a four-day winning streak.
The broad market depicted weakness. More than two stocks declined for each stock that rose on BSE. 1,888 shares declined and 713 shares gained. A total of 150 shares were unchanged. The BSE Mid-Cap index shed 1.47%. The BSE Small-Cap index dropped 1.25%. The fall in both these indices was lower than the Sensex's decline in percentage terms. All the nineteen sectoral indices on BSE registered losses.
The Sensex shed 378.61 points or 1.59% to settle at 23,410.18, its lowest closing level since 17 February 2016. The index lost 426.85 points or 1.79% at the day's low of 23,361.94. The index rose 62.72 points or 0.26% at the day's high of 23,851.51.
The Nifty fell 125 points or 1.73% to settle at 7,109.55, its lowest closing level since 17 February 2016. The index fell 143.85 points or 1.98% at the day's low of 7,090.70. The index rose 7.15 points or 0.09% at the day's high of 7,241.70.
Among the nineteen sectoral indices on BSE were in the red. The S&P BSE Metal index (down 1.75%), the S&P BSE Capital Goods index (down 1.7%), the S&P BSE Realty index (down 2.49%), the S&P BSE Basic Materials index (down 1.6%), the S&P BSE Energy index (down 1.89%), the S&P BSE Oil & Gas index (down 1.87%), the S&P BSE Bankex (down 2.82%), the S&P BSE Power index (down 1.67%), the S&P BSE Finance index (down 2.19%), and the S&P BSE Consumer Durables index (down 1.64%) underperformed the Sensex. The S&P BSE Industrials index (down 1.23%), the S&P BSE Auto index (down 1.43%), the S&P BSE Healthcare index (down 1.09%), the S&P BSE FMCG index (down 1.52%), the S&P BSE Telecom index (down 1.56%), the S&P BSE Consumer Discretionary Goods & Services index (down 1.42%), the S&P BSE Utilities index (down 1.44%), the S&P BSE IT index (down 0.81%), and the S&P BSE Teck index (down 0.92%) outperformed the Sensex.
The total turnover on BSE amounted to Rs 2583 crore, higher than turnover of Rs 1928.99 crore registered during the previous trading session.
All eyes are now on Union Budget 2016-17 to be announced on 29 February 2016. Finance Minister Arum Jaitley may provide a roadmap for rationalisation of the corporate tax exemptions in Budget. Jaitley in his last Budget had announced phased reduction in corporate taxes over four years to 25% from present 30%, and also simultaneous withdrawal of corporate tax exemptions.
TCS declined 2.12%. The company announced after market hours today, 23 February 2016, that it has been selected by Element Financial Corporation, one of North America's leading fleet management companies, to help it significantly evolve its fleet management technology platforms and user experience.
Wipro shed 0.61%. Wipro announced a partnership with SugarCRM to offer customer relationship management (CRM) solutions to its enterprise customers. The company made the announcement after market hours today, 23 February 2016.
FMCG stocks declined. Hindustan Unilever (down 2.9%), Colgate-Palmolive (India) (down 0.74%), Dabur India (down 4.42%), Godrej Consumer Products (down 1.27%), Marico (down 2.12%), Nestle India (down 1.69%), Tata Global Beverages (down 1.92%), Jyothy Laboratories (down 0.63%) fell. Bajaj Corp (up 0.07%), Britannia Industries (up 0.06%) and Procter & Gamble Hygiene and Health Care (up 0.18%) rose.
GlaxoSmithkline Consumer Healthcare was unchanged at Rs 5,630.
The government may significantly raise food subsidies and spends on MGNREGA in the Union Budget 2016-17. Any increase in rural spending/infrastructure spending/tax exemption, which can put money in hands of consumers, will indirectly benefit FMCG sector. In the previous Budget, it was announced that there would be a reduction in corporate tax rate over the next four years from 30% to 25%, which is a positive for consumer companies paying close to peak tax of income tax.
NTPC fell 2.33% to Rs 123.90 after Government of India set the floor price for divestment of up to 5% stake stake in the state-run firm through the stock exchanges mechanism at a discount to the ruling market price. The Offer for Sale (OFS) received strong response from institutional investors. As per BSE data, bids from non-retail investors were received for a total of 59.62 crore shares at an indicative prices of Rs 122.22 per share. A total of 32.98 crore shares have been reserved for this category of investors. GoI is selling up to 41.22 crore equity shares, constituting 5% of the total paid up equity share capital of the company, through Offer for Sale (OFS) via the stock exchanges mechanism. The floor price of Rs 122 per share for the OFS was set at a discount of 3.82% to the stock's closing price of Rs 126.85 on BSE yesterday, 22 February 2016.
Bidding for the shares in the OFS for non-retail investors concluded in a single trading session called 'T' day today, 23 February 2016. However, those non-retail investors who have placed their bids on T day and have chosen to carry forward their bids to T+1 day will be allowed to revise their bids on T+1 day. Bidding by retail investors will take place in a single trading session called T+1 day tomorrow, 24 February 2016. A total of 8.24 crore shares have been reserved for retail investors. Retail investors will be allocated offer shares at a discount of 5% to the cut-off price.
GoI currently holds 74.96% stake in NTPC (as per shareholding pattern as on 31 December 2015).
Separately, NTPC announced after market hours today, 23 February 2016, that it has launched issue of $500 million fixed rate unsecured notes due 2026. The notes carry a coupon rate of 4.25% per annum payable semi-annually, with tenor of 10 years. The notes are expected to be settled by 26 February 2016. The proceeds of the issue will be used for capital expenditure of ongoing and/or new power projects, coal mining projects and renovation and modernisation of power stations.
Many PSU stocks were in the red. Bharat Heavy Electricals (Bhel) (down 2.72%), Coal India (down 4.06%), GAIL (India) (down 1.77%), PowerGrid Corporation of India (down 1.83%) and Bharat Electronics (down 3.58%) declined.
Shares of public sector oil marketing companies fell amid concerns that government may impose customs duty on crude oil imports in the forthcoming Union Budget 2016-17. BPCL fell 3.03%.
Indian Oil Corporation dropped 4.04% to Rs 363.10 after the stock turned ex-dividend today, 23 February 2016, for interim dividend of Rs 5.50 per share for the year ending 31 March 2016 (FY 2016).
HPCL fell 4.87%. HPCL announced after market hours yesterday, 22 February 2016, that global credit rating agency Moody's Investors Service (Moody's) has assigned a first time Baa3 issuer rating to the company. The outlook for the rating is positive.
Reports suggested that the government may look at reimposing 5% customs duty on crude oil imports in the upcoming Budget 2016-17 in the wake of recent sharp slump in global crude oil prices. The government had cut customs duty on crude oil imports from 5% to zero in June 2011 when global crude oil prices had shot up to around $100 a barrel.
The government maintains a 2.5% import duty differential between crude oil and petroleum products, petrol and diesel, to protect the domestic industry. Currently, while crude oil attracts nil import duty, the levy on petrol and diesel stands at 2.5%. A 5% import duty likely to be imposed on crude in this year's Budget could, therefore, be accompanied by an increase in petrol and diesel import duty to 7.5%.
Meanwhile, a surge in crude oil prices overnight also weighed on PSU OMCs. Higher crude oil prices could increase under-recoveries of PSU OMCs on domestic sale of LPG and kerosene at controlled prices. The government has already freed pricing of petrol and diesel.
Brent for April settlement was currently down 39 cents at $34.30 a barrel. The contract had gained $1.68 a barrel or 5.09% to settle at $34.69 a barrel during the previous trading session. Crude prices surged overnight after the International Energy Agency said it expects US shale-oil production to fall by 600,000 barrels a day in 2016.
Shares of most oil exploration and production companies dropped. Oil India dropped 0.31%. ONGC rose 0.02%.
Index heavyweight Reliance Industries (RIL) lost 2.02% to Rs 943.05. The stock hit high of Rs 966.90 and low of Rs 943.05 in intraday trade.
Cairn India (down 4.36%), Vedanta (down 1.82%) and Punjab National Bank (down 4.03%) edged lower as these stocks will be excluded from the Nifty index with effect from 1 April 2016. Aurobindo Pharma shed 0.37%. Bharti Infratel (up 0.69%), Eicher Motors (up 0.04%) and Tata Motors' Differential Voting Rights (DVR) (up 1.82%) edged higher. Aurobindo Pharma, Bharti Infratel, Eicher Motors will be included in Nifty index with effect from 1 April 2016.
Index heavyweight and cigarette major ITC lost 1.77% to Rs 294.30, with the stock extending losses registered during the previous trading session triggered by concerns that the government may hike tax on all tobacco products in the Union Budget 2016-17 by upto 40%. The stock declined 1.72% to settle at Rs 299.60 yesterday, 22 February 2016. Reports suggested that tobacco products may again attract higher taxes in the upcoming Union Budget 2016-17 to be presented on Monday, 29 February 2016. Highlighting a discrepancy between the existing tobacco prices and rising income levels, the health ministry along with the World Health Organisation (WHO) and other public health groups have proposed a hike in taxes of up to 40% for all tobacco products, as per reports.
Bank stocks saw across the board slide. Among private bank stocks, HDFC Bank (down 2.12%), Kotak Mahindra Bank (down 2.92%), ICICI Bank (down 3.2%), Axis Bank (down 3.02%), IndusInd Bank (down 1.18%) and Yes Bank (down 3.77%) declined.
Among PSU bank stocks, State Bank of India (SBI) (down 3.94%), Bank of Baroda (down 4.66%), Canara Bank (down 3.12%), IDBI Bank (down 2.02%), Bank of India (down 2.42%) and Union Bank of India (down 3.5%) dropped.
For the banking sector, the key announcement to watch in the Union Budget 2016-17 is whether there is higher than proposed allocation of capital funds to public sector banks (PSU banks). As per Indradhanush framework for transforming PSU banks, the government has proposed capital infusion of Rs 70000 crore in PSU banks over four years through FY 2019, with Rs 25000 crore each for FY 2016 and FY 2017 and Rs 10000 crore each for FY 2018 and FY 2019. The government has already infused Rs 20000 crore in FY 2016 so far. A higher capital funds allocation would enable PSU banks to write off bad loans and meet with Basel III capital adequacy requirements. PSU banks continue to reel under a severe asset quality pressure, which worsened sharply in Q3 December 2015 after the Reserve Bank of India (RBI) advised banks to classify certain weak loan accounts as NPAs and make provision as a part of an Asset Quality Review (AQR) of the banking system.
Vijaya Bank slipped 0.96%. The bank announced after market hours yesterday, 22 February 2016, that it has decided to raise additional Tier-I bonds (Series III) amounting to Rs 500 crore.
In overseas stock markets, European stocks declined as crude oil prices dropped after a sharp surge overnight. Earlier during the global day, Asian markets ended on a mixed note. US stocks edged higher yesterday, 22 February 2016, as a surge in the price of oil lifted energy stocks.
The Sensex and the Nifty snapped a four-day winning streak. The Sensex had risen 600.82 points or 2.59% in the preceding four trading sessions to settle at 23,788.79 yesterday, 22 February 2016, from its close of 23,191.97 on 16 February 2016. The barometer index has fallen 1,459.51 points or 5.86% in this month so far (till 23 February 2016). The Sensex has fallen 2,707.36 points or 10.36% in calendar year 2016 so far (till 23 February 2016). From a 52-week low of 22,600.39 on 12 February 2016, the Sensex has risen 812.79 points or 3.59%. The Sensex is off 6,612.56 points or 22.02% from a record high of 30,024.74 hit on 4 March 2015.
Meanwhile, the summary released by the Reserve Bank of India (RBI) on RBI's consultation with external members of the Technical Advisory Committee (TAC) on monetary policy showed that the RBI governor went with a majority view in keeping the benchmark lending rate viz. the repo rate unchanged at 2 February 2016 monetary policy review. Four out of five members of the TAC recommended status quo on interest rates due to high services sector inflation and elevated inflationary expectations. They also felt the need to watch the impact of the pay commission recommendations on the evolution of headline and core inflation in the medium term. The majority of the members of the TAC were of the view that the RBI should assess supply-side measures and fiscal consolidation efforts in the Union Budget 2016-17 before making a move to cut policy rates. The members were of the view that the real policy rate is slightly below the neutral rate, suggesting that policy is currently accommodative, rather than neutral. One of these four members of the TAC was of the view that given the continuing weakness in the domestic economic recovery and the growing signs of further weakness in the international economy, consideration may be given to an out-of-cycle policy rate reduction, synchronized with the Union Budget. This could act as confidence booster on the flagging domestic private investment. The fifth member recommended a policy repo rate reduction by 50 basis points.
While retaining accommodative stance of the monetary policy, RBI Governor Raghuram Rajan said in his 2 February 2016 monetary policy statement that structural reforms in the Union Budget 2016-17 that boost growth while controlling spending will create more space for monetary policy to support growth.
The broad market depicted weakness. More than two stocks declined for each stock that rose on BSE. 1,888 shares declined and 713 shares gained. A total of 150 shares were unchanged. The BSE Mid-Cap index shed 1.47%. The BSE Small-Cap index dropped 1.25%. The fall in both these indices was lower than the Sensex's decline in percentage terms. All the nineteen sectoral indices on BSE registered losses.
The Sensex shed 378.61 points or 1.59% to settle at 23,410.18, its lowest closing level since 17 February 2016. The index lost 426.85 points or 1.79% at the day's low of 23,361.94. The index rose 62.72 points or 0.26% at the day's high of 23,851.51.
The Nifty fell 125 points or 1.73% to settle at 7,109.55, its lowest closing level since 17 February 2016. The index fell 143.85 points or 1.98% at the day's low of 7,090.70. The index rose 7.15 points or 0.09% at the day's high of 7,241.70.
Among the nineteen sectoral indices on BSE were in the red. The S&P BSE Metal index (down 1.75%), the S&P BSE Capital Goods index (down 1.7%), the S&P BSE Realty index (down 2.49%), the S&P BSE Basic Materials index (down 1.6%), the S&P BSE Energy index (down 1.89%), the S&P BSE Oil & Gas index (down 1.87%), the S&P BSE Bankex (down 2.82%), the S&P BSE Power index (down 1.67%), the S&P BSE Finance index (down 2.19%), and the S&P BSE Consumer Durables index (down 1.64%) underperformed the Sensex. The S&P BSE Industrials index (down 1.23%), the S&P BSE Auto index (down 1.43%), the S&P BSE Healthcare index (down 1.09%), the S&P BSE FMCG index (down 1.52%), the S&P BSE Telecom index (down 1.56%), the S&P BSE Consumer Discretionary Goods & Services index (down 1.42%), the S&P BSE Utilities index (down 1.44%), the S&P BSE IT index (down 0.81%), and the S&P BSE Teck index (down 0.92%) outperformed the Sensex.
The total turnover on BSE amounted to Rs 2583 crore, higher than turnover of Rs 1928.99 crore registered during the previous trading session.
All eyes are now on Union Budget 2016-17 to be announced on 29 February 2016. Finance Minister Arum Jaitley may provide a roadmap for rationalisation of the corporate tax exemptions in Budget. Jaitley in his last Budget had announced phased reduction in corporate taxes over four years to 25% from present 30%, and also simultaneous withdrawal of corporate tax exemptions.
TCS declined 2.12%. The company announced after market hours today, 23 February 2016, that it has been selected by Element Financial Corporation, one of North America's leading fleet management companies, to help it significantly evolve its fleet management technology platforms and user experience.
Wipro shed 0.61%. Wipro announced a partnership with SugarCRM to offer customer relationship management (CRM) solutions to its enterprise customers. The company made the announcement after market hours today, 23 February 2016.
FMCG stocks declined. Hindustan Unilever (down 2.9%), Colgate-Palmolive (India) (down 0.74%), Dabur India (down 4.42%), Godrej Consumer Products (down 1.27%), Marico (down 2.12%), Nestle India (down 1.69%), Tata Global Beverages (down 1.92%), Jyothy Laboratories (down 0.63%) fell. Bajaj Corp (up 0.07%), Britannia Industries (up 0.06%) and Procter & Gamble Hygiene and Health Care (up 0.18%) rose.
GlaxoSmithkline Consumer Healthcare was unchanged at Rs 5,630.
The government may significantly raise food subsidies and spends on MGNREGA in the Union Budget 2016-17. Any increase in rural spending/infrastructure spending/tax exemption, which can put money in hands of consumers, will indirectly benefit FMCG sector. In the previous Budget, it was announced that there would be a reduction in corporate tax rate over the next four years from 30% to 25%, which is a positive for consumer companies paying close to peak tax of income tax.
NTPC fell 2.33% to Rs 123.90 after Government of India set the floor price for divestment of up to 5% stake stake in the state-run firm through the stock exchanges mechanism at a discount to the ruling market price. The Offer for Sale (OFS) received strong response from institutional investors. As per BSE data, bids from non-retail investors were received for a total of 59.62 crore shares at an indicative prices of Rs 122.22 per share. A total of 32.98 crore shares have been reserved for this category of investors. GoI is selling up to 41.22 crore equity shares, constituting 5% of the total paid up equity share capital of the company, through Offer for Sale (OFS) via the stock exchanges mechanism. The floor price of Rs 122 per share for the OFS was set at a discount of 3.82% to the stock's closing price of Rs 126.85 on BSE yesterday, 22 February 2016.
Bidding for the shares in the OFS for non-retail investors concluded in a single trading session called 'T' day today, 23 February 2016. However, those non-retail investors who have placed their bids on T day and have chosen to carry forward their bids to T+1 day will be allowed to revise their bids on T+1 day. Bidding by retail investors will take place in a single trading session called T+1 day tomorrow, 24 February 2016. A total of 8.24 crore shares have been reserved for retail investors. Retail investors will be allocated offer shares at a discount of 5% to the cut-off price.
GoI currently holds 74.96% stake in NTPC (as per shareholding pattern as on 31 December 2015).
Separately, NTPC announced after market hours today, 23 February 2016, that it has launched issue of $500 million fixed rate unsecured notes due 2026. The notes carry a coupon rate of 4.25% per annum payable semi-annually, with tenor of 10 years. The notes are expected to be settled by 26 February 2016. The proceeds of the issue will be used for capital expenditure of ongoing and/or new power projects, coal mining projects and renovation and modernisation of power stations.
Many PSU stocks were in the red. Bharat Heavy Electricals (Bhel) (down 2.72%), Coal India (down 4.06%), GAIL (India) (down 1.77%), PowerGrid Corporation of India (down 1.83%) and Bharat Electronics (down 3.58%) declined.
Shares of public sector oil marketing companies fell amid concerns that government may impose customs duty on crude oil imports in the forthcoming Union Budget 2016-17. BPCL fell 3.03%.
Indian Oil Corporation dropped 4.04% to Rs 363.10 after the stock turned ex-dividend today, 23 February 2016, for interim dividend of Rs 5.50 per share for the year ending 31 March 2016 (FY 2016).
HPCL fell 4.87%. HPCL announced after market hours yesterday, 22 February 2016, that global credit rating agency Moody's Investors Service (Moody's) has assigned a first time Baa3 issuer rating to the company. The outlook for the rating is positive.
Reports suggested that the government may look at reimposing 5% customs duty on crude oil imports in the upcoming Budget 2016-17 in the wake of recent sharp slump in global crude oil prices. The government had cut customs duty on crude oil imports from 5% to zero in June 2011 when global crude oil prices had shot up to around $100 a barrel.
The government maintains a 2.5% import duty differential between crude oil and petroleum products, petrol and diesel, to protect the domestic industry. Currently, while crude oil attracts nil import duty, the levy on petrol and diesel stands at 2.5%. A 5% import duty likely to be imposed on crude in this year's Budget could, therefore, be accompanied by an increase in petrol and diesel import duty to 7.5%.
Meanwhile, a surge in crude oil prices overnight also weighed on PSU OMCs. Higher crude oil prices could increase under-recoveries of PSU OMCs on domestic sale of LPG and kerosene at controlled prices. The government has already freed pricing of petrol and diesel.
Brent for April settlement was currently down 39 cents at $34.30 a barrel. The contract had gained $1.68 a barrel or 5.09% to settle at $34.69 a barrel during the previous trading session. Crude prices surged overnight after the International Energy Agency said it expects US shale-oil production to fall by 600,000 barrels a day in 2016.
Shares of most oil exploration and production companies dropped. Oil India dropped 0.31%. ONGC rose 0.02%.
Index heavyweight Reliance Industries (RIL) lost 2.02% to Rs 943.05. The stock hit high of Rs 966.90 and low of Rs 943.05 in intraday trade.
Cairn India (down 4.36%), Vedanta (down 1.82%) and Punjab National Bank (down 4.03%) edged lower as these stocks will be excluded from the Nifty index with effect from 1 April 2016. Aurobindo Pharma shed 0.37%. Bharti Infratel (up 0.69%), Eicher Motors (up 0.04%) and Tata Motors' Differential Voting Rights (DVR) (up 1.82%) edged higher. Aurobindo Pharma, Bharti Infratel, Eicher Motors will be included in Nifty index with effect from 1 April 2016.
Index heavyweight and cigarette major ITC lost 1.77% to Rs 294.30, with the stock extending losses registered during the previous trading session triggered by concerns that the government may hike tax on all tobacco products in the Union Budget 2016-17 by upto 40%. The stock declined 1.72% to settle at Rs 299.60 yesterday, 22 February 2016. Reports suggested that tobacco products may again attract higher taxes in the upcoming Union Budget 2016-17 to be presented on Monday, 29 February 2016. Highlighting a discrepancy between the existing tobacco prices and rising income levels, the health ministry along with the World Health Organisation (WHO) and other public health groups have proposed a hike in taxes of up to 40% for all tobacco products, as per reports.
Bank stocks saw across the board slide. Among private bank stocks, HDFC Bank (down 2.12%), Kotak Mahindra Bank (down 2.92%), ICICI Bank (down 3.2%), Axis Bank (down 3.02%), IndusInd Bank (down 1.18%) and Yes Bank (down 3.77%) declined.
Among PSU bank stocks, State Bank of India (SBI) (down 3.94%), Bank of Baroda (down 4.66%), Canara Bank (down 3.12%), IDBI Bank (down 2.02%), Bank of India (down 2.42%) and Union Bank of India (down 3.5%) dropped.
For the banking sector, the key announcement to watch in the Union Budget 2016-17 is whether there is higher than proposed allocation of capital funds to public sector banks (PSU banks). As per Indradhanush framework for transforming PSU banks, the government has proposed capital infusion of Rs 70000 crore in PSU banks over four years through FY 2019, with Rs 25000 crore each for FY 2016 and FY 2017 and Rs 10000 crore each for FY 2018 and FY 2019. The government has already infused Rs 20000 crore in FY 2016 so far. A higher capital funds allocation would enable PSU banks to write off bad loans and meet with Basel III capital adequacy requirements. PSU banks continue to reel under a severe asset quality pressure, which worsened sharply in Q3 December 2015 after the Reserve Bank of India (RBI) advised banks to classify certain weak loan accounts as NPAs and make provision as a part of an Asset Quality Review (AQR) of the banking system.
Vijaya Bank slipped 0.96%. The bank announced after market hours yesterday, 22 February 2016, that it has decided to raise additional Tier-I bonds (Series III) amounting to Rs 500 crore.
In overseas stock markets, European stocks declined as crude oil prices dropped after a sharp surge overnight. Earlier during the global day, Asian markets ended on a mixed note. US stocks edged higher yesterday, 22 February 2016, as a surge in the price of oil lifted energy stocks.
The Sensex and the Nifty snapped a four-day winning streak. The Sensex had risen 600.82 points or 2.59% in the preceding four trading sessions to settle at 23,788.79 yesterday, 22 February 2016, from its close of 23,191.97 on 16 February 2016. The barometer index has fallen 1,459.51 points or 5.86% in this month so far (till 23 February 2016). The Sensex has fallen 2,707.36 points or 10.36% in calendar year 2016 so far (till 23 February 2016). From a 52-week low of 22,600.39 on 12 February 2016, the Sensex has risen 812.79 points or 3.59%. The Sensex is off 6,612.56 points or 22.02% from a record high of 30,024.74 hit on 4 March 2015.
Meanwhile, the summary released by the Reserve Bank of India (RBI) on RBI's consultation with external members of the Technical Advisory Committee (TAC) on monetary policy showed that the RBI governor went with a majority view in keeping the benchmark lending rate viz. the repo rate unchanged at 2 February 2016 monetary policy review. Four out of five members of the TAC recommended status quo on interest rates due to high services sector inflation and elevated inflationary expectations. They also felt the need to watch the impact of the pay commission recommendations on the evolution of headline and core inflation in the medium term. The majority of the members of the TAC were of the view that the RBI should assess supply-side measures and fiscal consolidation efforts in the Union Budget 2016-17 before making a move to cut policy rates. The members were of the view that the real policy rate is slightly below the neutral rate, suggesting that policy is currently accommodative, rather than neutral. One of these four members of the TAC was of the view that given the continuing weakness in the domestic economic recovery and the growing signs of further weakness in the international economy, consideration may be given to an out-of-cycle policy rate reduction, synchronized with the Union Budget. This could act as confidence booster on the flagging domestic private investment. The fifth member recommended a policy repo rate reduction by 50 basis points.
While retaining accommodative stance of the monetary policy, RBI Governor Raghuram Rajan said in his 2 February 2016 monetary policy statement that structural reforms in the Union Budget 2016-17 that boost growth while controlling spending will create more space for monetary policy to support growth.
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