Markets to extend gains with a positive start; RBI policy eyed

The Indian markets returned to their rally mood in last session and the benchmarks snapped the trade just shy of their all time highs. Buying emerged in market led by funds, which showed their interest on an expectation that there will be visible developments over the next six to twelve months. Today, the start is likely to be in green though there will be some cautiousness ahead of the Reserve Bank of India’s monetary policy announcement later in the day. Street is mostly expecting that Governor Raghuram Rajan will hold interest rates despite a change of guard at the centre. However, a surprise rate cut too cannot be ruled out, which would be a big sentiment positive for the market and the industry. There is another positive cue for the markets today, the eight core industries’ output grew by 4.2 per cent in April, higher than 3.7 per cent registered in the corresponding period a year ago. Auto sector is likely to keep buzzing with leading car makers reporting a spurt in sales in May in a sign that auto industry's fortunes may be turning around slowly. Meanwhile, shares of insurance business related companies too will remain firm on expectations that the parents would gain from the relaxation of foreign direct investment (FDI) limits.

The US markets made a mixed closing of volatile last session. Traders remained concerned by an erroneous report from the Institute for Supply Management showed an unexpected slowdown in the pace of growth in the manufacturing sector in the month of May. The Asian markets have mostly started in green, extending their gains with report of China’s official Purchasing Managers’ Index rising to 50.8 in May, the highest level since December.

Back home, boisterous benchmarks showcased an enthusiastic performance on Monday, by rallying around two percentage points ahead of the RBI’s policy meeting tomorrow. Sentiments remained up-beat since start as key bourses opened with decent gains and there appeared not even an iota of profit booking in the session as the benchmarks managed to fervently gain from strength to strength as investors continued hunt for fundamentally strong stocks. Frontline indices not only ended the session near intraday high levels but also recaptured their crucial 7,350 (Nifty) and 24,650 (Sensex) bastions as investors took to hefty across the board buying. Sentiments got bolstered after manufacturing activity inched up in May compared to the previous month, according to the widely-tracked HSBC Purchasing Managers’ Index (PMI). The index for manufacturing rose marginally to 51.4 points in May from 51.3 points in April. Sentiments also remained up-beat on reports that foreign institutional investors (FIIs) bought shares worth a net Rs 2,977.62 crore on May 30, 2014, as per provisional data from the stock exchanges. Meanwhile, investors shrugged off GDP data announced after the market hours on Friday. India’s economic growth remained below the 5 percent mark for the second year in a row at 4.7 percent in 2013-14. Growth remained subdued at 4.6 percent in the fourth quarter of 2013-14 too, mainly due to a decline in manufacturing and mining output. Global cues remained supportive with encouraging Chinese factory data and Asian equities moved higher, while European counterparts too traded mostly in the green in early deals. Back home, there was broad based buying witnessed in the markets and apart from the blue chips, the broader markets too participated strongly in the rally. Rally in capital goods counter too aided the sentiments led by over six percent rise in Larsen & Toubro (L&T). The company reported 52.33% rise in its net profit of Rs 2723.48 crore for the fourth quarter as compared to Rs 1787.94 crore for the same quarter in the previous year. Meanwhile, banking stocks witnessed strong demand ahead of the Reserve Bank of India's (RBI's) bi-monthly monetary policy review on Tuesday. Finally, the BSE Sensex soared by 467.51 points or 1.93%, to 24684.85, while the CNX Nifty surged by 132.55 points or 1.83%, to 7,362.50.