Hopes of interest rate cut buoy markets

5 Dariya News

Mumbai 29-Jan-2016

Hopes of an interest rate cut, coupled with a strengthening rupee and positive global cues, buoyed the Indian equity markets on Friday.This led to a barometer index of the Indian equity markets to gain 401 points during the day's trade.Initially, both the Indian bellwether indices opened on a positive note, in sync with their Asian peers, firm crude oil prices and Bank of Japan's (BoJ) decision to maintain its stimulus program.Markets started their upward climb after initial consolidation from Thursday's close -- when both bellwether indices ended flat.Further, markets showed a healthy interest in the February F&O (futures and options) series.Trends in midcap segment showed an increase in participation on the back of liquidity injected by domestic institutional investors (DIIs) and fall in foreign institutional investors' (FIIs) exposure.In addition, short-covering and value buying at lower levels pushed up prices.Investors were seen hopeful of an interest rate cut during the upcoming monetary policy review by the Reserve Bank of India (RBI) which is slated for February 2. 

Expectations were backed up by Bank of Japan's decision to go in for a negative interest rate to support the Japanese economy. The BoJ's cut key lending rates by 20 basis points to negative 0.1 percent. BoJ's decision comes a day after the US Fed maintained its status quo on key lending rates.Recently, the European Central Bank (ECB) indicated more stimulus measures which will be announced in March. Positive bias gained momentum as the Chinese central bank decided to pump in an additional $15.2 billion into the financial system via an extra money market operation.Besides, strengthening of rupee's value soothed investors' nerves. It strengthened by 45 paise at 67.78 to a US dollar from its previous close of 68.23 to a greenback. "Rupee had opened slightly stronger and then went on to strengthen more and close at 67.78, on the back of easing from BoJ," said Anindya Banerjee, associate vice president for currency derivatives with Kotak Securities, told IANS.

"BOJ lowered rates to negative zone and that triggered the reflexive risk on trade in the world financial markets." Moreover, the India volatility index (VIX) dropped to the lower end of it's range. India VIX closed at 17.9000, down around 6.07 percent.Even the rebound in European indices, too, supported the Indian markets' upward move. The rebound was led by mining and energy shares. The barometer 30-scrip sensitive index (Sensex) of the Bombay Stock Exchange (BSE) closed higher by 401 points, or 1.64 percent.Similarly, the wider 50-scrip Nifty of the National Stock Exchange (NSE) made gains during the day's trade. It rose by 140 points, or 1.87 percent, at 7,563.55 points.The S&P BSE Sensex, which opened at 24,347.31 points, closed at 24,870.69 points -- up 401.12 points or 1.64 percent from the previous day's close at 24,469.57 points.It touched a high of 24,911.90 points and a low of 24,340.06 points during the intra-day trade.

The S&P BSE market breadth favoured the bulls -- with 1,556 advances and 1,035 declines."Short-covering and value buying on account of hopes of an interest rate cut by RBI and strengthening rupee supported markets' gains," Anand James, co-head, technical research desk with Geojit BNP Paribas Financial Services, told IANS."The continuation of stimulus by BoJ, following US Fed's status quo on interest rates has heightened expectations of an interest rate cut by the RBI."Vaibhav Agarwal, vice president and research head at Angel Broking, predicted markets to witness profit booking at higher levels. "With earnings showing no signs of any immediate rise, there are no immediate positive triggers for markets," Agarwal noted."With no rate cut expected in the RBI policy next week, markets will shift its focus towards expectations from the budget."Both the FIIs and DIIs turned net buyers during the day's trade. 

According to data with stock exchanges, FIIs invested Rs.571.70 crore, while the DIIs' picked up stocks worth Rs.240.02 crore.Sector-wise, healthy buying was observed in stocks of healthcare, consumer durables, automobile, information technology (IT) and capital goods. 

On the other hand, telecom sectors came under intense selling pressure.The S&P BSE healthcare index augmented by 398.67 points, consumer durables index gained by 384.55 points, automobile index edged-up by 318.71 points, IT index was higher by 264.42 points and capital goods index swelled by 234.46 points.However, the S&P BSE telecom index receded by 12.41 points.Major Sensex gainers during Friday's trade were Coal India, up 4.73 percent at Rs.320.05; Hero MotoCorp, up 4.67 percent at Rs.2,562.80; Sun Pharma, up 4.60 percent at Rs.873; Hindustan Unilever, up 3.29 percent at Rs.816.90; and Dr. Reddy's Lab, up 3.21 percent at Rs.3,103.60.Major Sensex losers during the day's trade were State Bank of India (SBI), down 2.91 percent at Rs.179.95; Tata Steel, down 1.71 percent at Rs.250.05; NTPC, down 1.32 percent at Rs.142.20; ICICI Bank, down 1.22 percent at Rs.230.10; and Bharti Airtel, down 0.55 percent at Rs.289.70.