Benchmarks extend northward journey on firm global cues

Extending their previous session’s rally, Indian equity benchmarks staged an enthusiastic performance on Wednesday, by rallying over three fourth of a percent and breaking lots of psychological levels in their northward rally on the penultimate session of October F&O expiry on sustained buying activities by funds and retail investors ahead of the outcome of Fed’s two day meeting. Sentiments remained up-beat since start as key bourses opened with huge gap on up-side 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 their hunt for fundamentally strong stocks.

Supportive cues from US markets provided the much needed support to local markets initially, while good earnings and better than expected economic data lifted the markets higher. Asian markets too ended higher tracking overnight gains in US stocks on the back of robust corporate earnings. Buying got intensified in domestic markets on the back of positive opening in European counters.

Back home, there was broad based buying witnessed in the markets and apart from the blue chips, the broader markets too equally participated in the rally. Frontline indices managed to settle near intraday high levels with Sensex and Nifty ended just shy of their crucial 27,100 and 8,100 levels respectively. Slight recovery in Indian rupee too supported the sentiments. The rupee was trading at 61.30 per dollar at the time of equity markets closing as compared to Tuesday’s close of 61.32, tracking gains in domestic equity markets.

Meanwhile, auto stocks edged higher on buzz of strong sales during the Diwali festive season. Additionally, stocks related to realty surged ahead of Cabinet’s decision of the proposal of relaxing foreign direct investment (FDI) norms in construction sector. The Department of Industrial Policy and Promotion (DIPP), the nodal agency for FDI rules, proposed bringing down the minimum built-up area requirement for FDI in construction projects from 50,000 sq. metres to 20,000 sq. metres along with reducing the minimum capital requirement for such projects from $10 million to $5 million.

However, banking counter witnessed sell-off after Global rating agency Moody’s said that its outlook on India’s banking system is negative. The negative outlook on the Indian banking system pertains mainly to the public-sector banks. They represent more than 70% of total banking-system assets. Additionally, Healthcare counter sunk in trade after drug maker Dr Reddy's Laboratories’ second quarter consolidated net profit fell 16.8% to Rs 574 crore compared to Rs 690.2 crore in the year-ago period.

The NSE’s 50-share broadly followed index Nifty rose by over sixty points and ended near the psychological 8,100 support level, while Bombay Stock Exchange’s Sensitive Index -- Sensex rose by around two hundred and twenty points to finish near the psychological 27,100 mark. Broader markets too traded with traction and ended the session with a gain of over half a percent. The market breadth remained in favour of advances, as there were 1610 shares on the gaining side against 1355 shares on the losing side while 109 shares remain unchanged.

Finally, the BSE Sensex surged by 217.35 points or 0.81%, to 27098.17, while the CNX Nifty soared by 62.85 points or 0.78% to 8,090.45.

The BSE Sensex touched a high and a low of 27126.30 and 26971.16, respectively. The BSE Mid cap index was up by 0.52%, while the Small cap index was up by 0.62%.

The top gainers on the Sensex were Hindalco up by 5.95%, Tata Steel up by 4.60%, Tata Motors up by 3.41%, Infosys up by 2.25% and Sesa Sterlite up by 2.12%. On the flip side, Dr. Reddys Lab down by 1.11%, Sun Pharma down by 1.11%, NTPC down by 0.85%, Bharti Airtel down by 0.81% and SBI down by 0.52% were the top losers in the index.

On the BSE Sectoral front Realty up by 2.97%, Metal up by 2.63%, Auto up by 1.79%, IT up by 1.47% and TECK up by 1.31% were the top gainers, while Healthcare down by 0.29% and Bankex down by 0.23% were the only losers in the space.

Meanwhile, in order to take advantage of the bullish Indian stock market sentiments, Finance Ministry has initiated measures to cut government stake in public sector banks to 51%. The move will help the PSU banks to expand their equity base by issuing fresh shares to the public.

The government is of the view that PSU banks should be well capitalized to meet the funding requirement as several banks including State bank of India (SBI) will need more equity to meet the higher fund requirement of corporate and retail borrowers in coming years. A higher equity base will enable banks to issue more bonds and maintain capital adequacy ratio of around 12%. There are six state-run banks whose capital adequacy ratio stands below 12% because government holding in these banks stands around 60%.

The government has projected that state-owned banks will need around Rs 2.4 lakh crore till 2018. With government finances already stretched, it decided to give around over Rs 11,000 crore for recapitalizing banks and the rest of the funds are needed to be raised from the market. It has also asked the public sector banks to sell non-core assets and initiate several other measures to meet the funding needs.

Earlier in May, an RBI panel had suggested the government to cut its holding in public sector banks to below 50 percent. The panel has said that governance at the 26 PSU banks suffers due to several ‘externally imposed constraints’ like dual regulation by the Finance Ministry and RBI and external vigilance by agencies like the CVC and CAG among others. Further, the move would also benefit the government as it would continue to be the dominant shareholder and create a condition for its banks to compete more successfully.

The CNX Nifty touched a high and low of 8,097.95 and 8,052.25 respectively.

The top gainers of the Nifty were Hindalco Industries up by 6.30%, DLF up by 6.06%, Tata Steel up by 4.72%, Jindal Steel & Power up by 3.75% and Tata Motors up by 3.31%. On the other hand, PNB down by 1.80%, Bank of Baroda down by 1.71%, NTPC down by 1.35%, Sun Pharmaceuticals Industries down by 1.08% and IndusInd Bank down by 1.03% were the top losers.

European markets were trading in green, France’s CAC 40 was up by 0.26%, United Kingdom’s FTSE 100 was up by 0.69% and Germany’s DAX was up by 0.71%.

Asian markets ended in green on Wednesday, after Japanese industrial production jumped the most since January and as investors awaited a decision by the US Federal Reserve on quantitative easing. Singapore’s finance minister stated that the country’s longest stretch of property price declines since the global financial crisis may not be enough to prompt the city to ease its housing curbs. Singapore’s private home prices fell 0.7% in the three months ended September, the fourth quarter-on-quarter drop, bringing the slide in the past year to almost 4%. That’s the longest losing streak since 2009, when the government started housing curbs with some of the strictest measures implemented last year, including a cap on debt.

Japanese industrial production rose the most since January in a sign that companies are recovering from the blow of a higher sales tax. Bank of Japan Governor raised concern that it would be hard to deal with risks should confidence in the nation’s finances be shaken by a delay while a finance official in Abe’s ruling party warned the economy isn’t strong enough. Industrial production in Japan rose more-than-expected last month. The industrial production rose to a seasonally adjusted 2.7%, from -1.9% in the preceding month. The BOJ, in an economic assessment earlier this month after August output unexpectedly declined, stated that some weakness was showing, particularly on the production side. Abe will look at third-quarter data when he decides whether to proceed with an increase in the sales levy to rein in the world’s largest debt burden.