Benchmarks resume northward journey; Nifty regains 8,400 mark

Resuming their northward journey, Indian equity benchmarks ended the Wednesday’s trade with a gain of over half a percent with frontline gauges recapturing their crucial 8,400 (Nifty) and 27,800 (Sensex) bastions. Markets after a firm start traded in tight band throughout the session as investors opted to buy beaten down but fundamentally strong stocks. Sentiments remained up-beat with the HSBC report that the current account deficit is likely to remain at ‘manageable levels’ of around 1.5 per cent of GDP in the current fiscal despite a marginal rise in oil prices and sluggish manufacturing exports.

Some support also came with an UN report, saying that Indian economic growth is projected to surpass that of China, with the GDP expected to zoom by 7.7% in 2016, while China is projected to grow by 7 per cent in 2015 and 6.8 per cent next year. Also, due to falling prices of some food items, retail inflation based on consumer price index (CPI) for rural labourers eased to 5.49% in March from 6.19% in the previous month. The rate of price-rise based on CPI for agricultural labourers too softened to 5.24% in March from 6.08% in February.

On the global front, European counters were trading mostly in the red in early deals, giving back a portion of gains notched up in an ECB-inspired rally the previous session. Also cautiousness ahead of the release of minutes from the US Federal Reserve’s meeting in April weighed on the sentiment. Asian markets ended mostly in the green, led by around a percent gain in Japanese markets after the country’s gross domestic product climbed 0.6 per cent on quarter in the first quarter of 2015.

Back home, some support came in from report that foreign portfolio investors bought shares worth a net Rs 48.06 crore on May 19, 2015, as per provisional data. Buying in software and technology counters too aided the sentiments after the rupee depreciated considerably against the US dollar due to appreciation of the American currency overseas riding on strong economic data.

Meanwhile, rate cut hopes buoyed the sentiment for banking shares. In a related development for the banking sector, Finance ministry issued draft guidelines on gold monetization scheme that will encourage Indians to vest the gold in their possession with banks and earn interest on it. Banks could treat gold deposits as part of their cash reserve ratio (CRR) or statutory liquidity ratio (SLR), the finance ministry said in its guidelines released to seek opinions about its gold monetization scheme. On the flip side, select stocks from FMCG counter edged lower after reports suggested that El Nino conditions in the tropical Pacific region were likely to strengthen, according to Australian Bureau of Meteorology, which closely tracks weather in the region.

The NSE’s 50-share broadly followed index Nifty rose by around sixty points and ended above the psychological 8,400 support level, while Bombay Stock Exchange’s Sensitive Index -- Sensex surged by over one hundred and ninety points to finish above the psychological 27,800 mark. Broader markets struggled to get some traction and ended the session mixed. The market breadth remained in favor of advances, as there were 1,378 shares on the gaining side against 1,319 shares on the losing side while 138 shares remain unchanged.

Finally, the BSE Sensex surged by 191.68 points or 0.69% to 27837.21, while the CNX Nifty gained  57.60 points or 0.69% to 8,423.25.

The BSE Sensex touched a high and a low of 27903.01 and 27743.99, respectively. The BSE Mid cap index was down by 0.24 points, while Small cap index up by 0.17%.

The top gainers on the Sensex were HDFC up by 2.11%, Wipro up by 2.03%, TCS up by 1.82%, Tata Power up by 1.78% and HDFC Bank up by 1.72%. On the flip side, Bajaj Auto down by 2.22%, Tata Steel down by 1.85%, BHEL down by 1.51%, Coal India down by 1.17% and Hindalco down by 1.00% were the top losers.

The gaining sectoral indices on the BSE were IT up by 1.78%, TECK up by 1.51%, Bankex up by 0.86%, INFRA up by 0.75% and Power up by 0.51% while, Metal down by 0.77%, Auto down by 0.54% and Capital Goods down by 0.29%, were the few losing indices on BSE.

Meanwhile, amid rising demand for reducing policy rates again, the Reserve Bank of India (RBI) Governor Raghuram Rajan has said that lower interest rates and tax incentives can boost investments, but it is consumer demand that holds the key for pushing economic growth. Rajan raising concern over central banks globally being pushed into 'competitive monetary easing' said that the 'current non-system in international monetary policy is, in my view, a source of substantial risk, both to sustainable growth as well as to the financial sector. He further said that it is not an industrial country problem, nor an emerging market problem, it is a problem of collective action'.

Governor Rajan pointing that policy rates cannot be reduced significantly below zero, though a number of European countries are testing these limits, said equilibrium long term interest rates may stay higher than levels necessary to incentivise investments. Rajan, making a familiar argument for better global coordination on monetary policy, said central bankers in developed economies should take more seriously their international responsibilities.

Talking about the possible solution, he said that another way to stimulate demand is for governments that still have the ability to borrow to increase spending. Since this will increase already-high levels of government debt, proponents suggest investing in infrastructure, which may have high returns today when construction costs and interest rates are low. Though, he added that high-return infrastructure investment is harder to identify and implement in developed countries where most obvious investments have already been made political influence is as likely to create bridges to nowhere or unviable high speed train networks as needed infrastructure.

The continuously lowering inflation has raised expectation and voices of another rate cut from the RBI. WPI inflation dipped to record (-)2.65% in April, while the Consumer Price Index based inflation fell to a 4-month low of 4.87 per cent in April. Further, the retail inflation based on consumer price index (CPI) for rural labourers eased to 5.49% in March from 6.19% in the previous month. The rate of price-rise based on CPI for agricultural labourers too softened to 5.24% in March from 6.08% in February.

The CNX Nifty touched a high and low of 8,440.35 and 8,391.45 respectively.

The top gainers on Nifty were Tech Mahindra up by 3.35%, HCL Technologies up by 2.51%, HDFC up by 2.13%, TCS up by 1.76% and Wipro up by 1.74%. On the flip side, Bajaj Auto down by 2.37%, Idea Cellular down by 2.26%, Tata Steel down by 2.09%, Cairn India down by 2.06% and Bharat Heavy Electricals down by 2.00% were the top losers.

Most of European Markets were trading in the red; Germany's DAX was down by 0.19%, France's CAC down by 0.26% while, UK's FTSE was up by 0.05%.

The Asian markets closed mostly in green on Wednesday, with Nikkei stocks closing at a fresh 15-year high on a weaker yen and solid Japanese growth data. Japan’s economy expanded at its fastest pace in a year in January-March as business investment rose slightly, but goods piling up in factory warehouses posed a potential challenge to policy makers seeking to vanquish years of deflation. Private consumption, housing investment and exports all rose but at a feeble pace, leaving Tokyo with more work to do two years after a radical monetary stimulus program has brought only scant success. The world’s third-largest economy expanded at an annualized rate of 2.4% in the first three months of this year, beating a median market forecast for a 1.5% increase and a revised 1.1% expansion in October-December. The data will be closely scrutinized at the BOJ’s two-day rate review that ends on Friday. The central bank is widely expected to maintain its massive stimulus program and rosy assessment of the economy.

Indonesia’s central bank held its key interest rate steady for the third consecutive month despite slowing growth in Southeast Asia’s biggest economy. Bank Indonesia’s board of governors kept the rate at 7.50%. An influential South Korean government think tank stated that economic growth this year would slow to the 2% range unless some structural and monetary changes, including more interest rate cuts, are made. The Korea Development Institute (KDI) stated that growth above 3% could only be achieved if the central bank lowers interest rates once or twice more and the government’s structural reforms succeed.