Benchmarks end near intraday highs on rate cut hopes

Wednesday’s session turned out to be a fabulous day of trade for the Indian equity markets, where frontline gauges garnered gains of around one and a half percent. Hectic buying activity which took place during last leg of trade mainly drove the markets higher, with frontline gauges ending at intraday high levels, recapturing their crucial 27,250 (Sensex) and 8,200 (Nifty) bastions. Earlier, markets made a gap-up start as investors remained hopeful that Reserve Bank of India (RBI) will slash key interest rates but soon sharp sell-off witnessed and markets gave up all of their gains  as investors turned cautious with global rating agency Moody’s warning that monsoon failure and global financial volatility could pose additional risks to India's growth this year. Nevertheless, markets picked-up pace in last hour of trade to end near intraday high levels.

Overall, sentiments remained up-beat with Paris-based think tank OECD saying that India is poised for stable growth even as economic activities are easing in neighbouring and some other developed nations. In other encouraging development the RBI has called for higher capital outlays, consistent fiscal consolidation and limiting the debt-GDP ratio to improve the finances of the states, whose combined gross fiscal deficit has improved by 20 bps to 2.3 percent of GDP in FY 2014-15. On the macro-economic front, the retail inflation softened further to a four-month low of 4.87% in April compared to 5.25% in March. In contrast, factory output growth slowed to a five-month low of 2.1 per cent in March as against 5 per cent registered in February.

Global cues too remained supportive with European counters making a firm start, helped by some calm returning to bond markets and by strong results from France’s Vivendi and Britain’s SABMiller. Asian markets ended mostly in the green on Wednesday, shrugging off weakness in Wall Street as investors bet that a batch of economic data from China due later in the day would bolster the case for more stimulus in the world's second-largest economy.

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. Appreciation in Indian rupee too supported the sentiments. The partially convertible rupee was trading at 63.95 per dollar at the time of equity market closing against the Tuesday’s close of 64.16 on the Interbank Foreign Exchange.

Rally in rate-sensitive sectors mainly financials and auto too aided the sentiments after retail inflation softened further in April giving rise to hopes of a rate-cut by the RBI. Stocks of fertilizer companies remained on buyers’ radar after the Union Cabinet approved a new urea policy that aims to make the country self-sufficient in production in the next four years and ensure timely supply of the soil nutrient to farmers. Meanwhile, PSU banks stocks remained upbeat even after Moody's Investors Service highlighted that improvement in the credit profiles of Indian public-sector banks (PSBs) could be achieved only in the medium term, given their high levels of impaired loans and weak capital positions.

The NSE’s 50-share broadly followed index Nifty rose by around one hundred and ten points and ended above the psychological 8,200 support level, while Bombay Stock Exchange’s Sensitive Index -- Sensex surged by over three hundred and seventy points to finish above the psychological 27,250 mark. Broader markets too traded with traction throughout the trade and ended the session with a gain of around a percentage point. The market breadth remained in favor of advances, as there were 1,639 shares on the gaining side against 1,059 shares on the losing side while 118 shares remain unchanged.

Finally, the BSE Sensex surged by 373.62 points or 1.39% to 27251.10, while the CNX Nifty soared by 108.50 points or 1.34% to 8,235.45.

The BSE Sensex touched a high and a low of 27299.80 and 26750.01, respectively. The BSE Mid cap index was up by 1.56%, while Small cap index up by 0.87%.

The top gainers on the Sensex were Axis Bank up by 4.95%, GAIL India up by 3.08%, ICICI Bank up by 2.88%, SBI up by 2.52% and Mahindra & Mahindra up by 2.48%. On the flip side, Hindalco down by 2.91%, NTPC down by 2.47%, Bharti Airtel down by 2.30%, Coal India down by 0.32% and Vedanta down by 0.23% were the top losers.

The gaining sectoral indices on the BSE were Bankex up by 2.64%, Capital Goods up by 1.81%, Auto up by 1.72%, Power up by 1.29% and Oil & Gas up by 1.27% while, Realty down by 0.34% was the only losing indices on BSE.

Meanwhile, taking a note of improving state’s gross fiscal deficit situation, Reserve Bank of India (RBI) has pressed for need of creating fiscal space for higher capital outlays, improving the quality of fiscal consolidation and containing debt-GDP ratio to improve the finances of the states. A study of 2014-15 budgets revealed that states’ gross fiscal deficit has improved by 20 bps to 2.3% of GDP in FY 2014-15 from 2.5% in 2013-14, while states’ gross revenue surplus improved in FY15 to 0.4 per cent from zero per cent of GDP in the previous fiscal.

However, the report pointed that the fiscal deficit in FY 2011-12 stood at 1.9% of the combined GDP of the states and 2% in FY2012-13 and 2.2% (BE) in FY2013-14, while revenue surplus stood at 0.3%, 0.2%, 0.4% and 0.0% of GDP, respectively.

In absolute terms, the gross fiscal deficit of states stood at Rs 2,95,060 crore or 2.3% in 2014-15 (BE) as against Rs 2,45,050 crore or 2.2% in 2013-14 (BE), while the combined revenue surplus stood at Rs 54,170 crore or 0.4% of their GDP as against a surplus of Rs 47,730 crore or 0.4%, on the overall improvement in revenue collection.

Further, the report pointed to erosion of state revenue surpluses particularly in 2013-14 (revised estimates), from post crisis fiscal consolidation experience. It highlighted that though the fiscal deficit at the consolidated level remained within the target set by 13th Finance Commission during the period under review, state level targets were not met by some states.

The report, which asserted of states performing poorly in terms of fiscal marksmanship, reflecting over-estimation of expenditures relative to receipts, called for improvement in the reliability of their forecasts of key fiscal parameters like tax and expenditure, and macroeconomic aggregates.

RBI report has been based on the latest budget documents of 17 states, which account for 88 per cent of both the non-debt receipts and total expenditure in 2014-15 (budget estimates), the revised estimates for 2014-15 indicate deterioration in the deficit indicators as compared to the budget estimates. Nevertheless, RBI report added that information available for 17 states warrants a careful assessment of initial expectations.

The CNX Nifty touched a high and low of 8,254.95 and 8,089.80 respectively.

The top gainers on Nifty were Axis Bank up by 4.98%, ICICI Bank up by 3.49%, GAIL (India) up by 3.46%, IDFC up by 3.06% and State Bank of India up by 2.62%. On the flip side, Lupin down by 3.51%, Hindalco Industries down by 3.05%, Bharti Airtel down by 2.40%, NTPC down by 1.80% and Zee Entertainment Enterprises down by 1.13% were the top losers.

European Markets were trading in the green; France's CAC was up by 1.24%, Germany's DAX was up by 0.85% and UK’s FTSE was up by 0.62%.

The Asian markets closed mostly in green, while Hong Kong and Shanghai retreated after more disappointing Chinese data pointing to a further slowdown in the economy. Bank of Japan Governor Haruhiko Kuroda acknowledged that last year’s sales tax hike imposed bigger damage on the economy and prices than initially expected. He added that the economy is sustaining positive momentum spurred by the central bank’s massive stimulus programme adopted in 2013. Kuroda enlightened that excessive yen strength has been reverWatchers Current Index sed since the introduction of the bank’s massive stimulus programme in 2013. The BOJ’s quantitative and qualitative easing was to lower real interest rates by pushing down nominal interest rates and heightening inflation expectations.

Japan’s Economy rose to a seasonally adjusted 53.6, from 52.2 in the preceding month while Japan’s Current Account rose to a seasonally adjusted 2.07T, from 0.61T in the preceding month whose figure was revised up from 0.60T. Japan’s Bank Lending remained unchanged at a seasonally adjusted annual rate of 2.6%, from the preceding quarter. Chinese Industrial Production rose to 5.9%, from 5.6% in the preceding month while Chinese Retail Sales fell to an annual rate of 10.0%, from 10.2% in the preceding month. Chinese Fixed Asset Investment fell to a seasonally adjusted 12.0%, from 13.5% in the preceding month.