Boisterous benchmarks display spirited performance; Sensex rallies over 250 pts

The June series futures and options contract expiry turned out to be a jubilant session for the Indian frontline equity indices as they managed to settle with gains of around a percent, with worries over the impact of the Britain's decision to leave the European Union known as Brexit receded. Investors remained optimistic for most part of the session with the report that implementation of the much-awaited pay hike for over 1 crore central government employees and pensioners will be a positive for the economy as it will push up consumption and its impact on inflation is likely to be moderate.  The Cabinet has cleared the recommendations of the 7th Pay Commission according to which the overall hike in salary and allowance of central government employees and pensioners comes to 23.5 per cent. 

Besides, appreciation in Indian rupee against the dollar too aided sentiments. Indian rupee firmed up by 15 paise to 67.52 against the dollar at the time of equity markets closing, following sustained selling of the US currency by exporters and banks. Some support also came with Finance Minister Arun Jaitley’s statement that the Non Performing Assets (NPA) situation is under control as the economic conditions are showing signs of improvement. He pointed to some factors mentioned in the FSR including the numbers of declining weak companies and the number of stressed companies deleveraging quite fast. Meanwhile, after disappointing on first half of June, Monsoon have gathered pace in second half of the month, leading to significant drop in countrywide rainfall deficiency. As on June 29, the countrywide cumulative rainfall deficiency stands at 12%, which had once mounted to 25% earlier.  

On the global front, Asian markets closed mostly higher on Thursday, as anxiety over the UK leaving the European Union diminished amid speculation central banks will support financial markets. Japanese shares erased earlier gains to end almost flat after the country’s weak industrial production data, while Chinese stocks ended marginally lower after three days of gains, as investors looked ahead to factory and service sector activity readings due on Friday for further direction. Further, European shares rose, with the France’s CAC leading the gains with over half a percent in early trade. 

Back home, the benchmark started the day on an optimistic note tracking the Asian peers which traded mostly in the green following the upbeat overnight cues from the Wall Street where banks and other financial companies led another broad surge. The frontline indices soon gathered momentum and traded with over a percent gains in the afternoon session. But the optimism soon started showing signs of easing in late hours of trade and profit booking in few sectors, weighed down the local bourses. Yet, final hour buying ensured that the key indices shut shops near intraday highs. Eventually the NSE’s 50-share broadly followed index Nifty, climbed by over a percent and settled above the crucial 8,250 support level, while Bombay Stock Exchange’s Sensitive Index Sensex amassed two hundred and fifty points and closed just below the psychological 27,000 mark. Moreover, the broader markets too participated in the rally and closed with gains of around a percent. On the BSE sectoral space, hefty buying was evident across the board as not even a single sectoral index went home in the negative territory. Investors piled up hefty positions in the Realty counter which rocketed by around two and half percent while the Power index too witnessed good buying and jumped by over two percent. High beta sectors like - Metal, Banking and Consumer Durables too soared in the session.

The market breadth remained optimistic as there were 1598 shares on the gaining side against 1011 shares on the losing side, while 221 shares remained unchanged

Finally, the BSE Sensex surged 259.33 points or 0.97% to 26999.72, while the CNX Nifty rose 83.75 points or 1.02% to 8,287.75.

The BSE Sensex touched a high and a low 27069.23 and 26872.59, respectively. The broader indices made a positive closing; the BSE Mid cap index ended up by 1.26%, while Small cap index was up by 0.94%.

The top gaining sectoral indices on the BSE were Realty up by 2.39%, Power up by 2.19%, Metal up by 1.74%, Bankex up by 1.46% and Consumer Durables up by 1.44%, while there were no losing sectoral indices on the BSE.

The top gainers on the Sensex were Dr. Reddys Lab up by 3.38%, NTPC up by 3.17%, Axis Bank up by 3.11%, Tata Motors up by 2.72% and Tata Steel up by 2.70%. On the flip side, Sun Pharma down by 1.00% and Infosys down by 0.49% were the top losers.

Meanwhile, India Ratings and Research, following the Cabinet’s decision to clear all recommendations made by the Seventh Pay Commission report, resulting in about 23.55 percent overall increase in salaries, allowances and pension for more than 1 crore government staff and pensioners, has said that implementation of the much- awaited pay hike for one crore central government employees and pensioners will boost domestic consumption by Rs 45,110 crore as also push up household savings. Overall it is positive for growth with modest risk on inflation.

According to India rating the gross impact of the increased pay out on the government exchequer is likely to be Rs 94,775 crore or 0.63 per cent of GDP. It added that the central government will receive income tax on this pay out and collect excise duty on consumption, after sharing the increase in income tax and excise duty with states. Thus the net impact on the central government finances is estimated to be Rs 80,641 crore or 0.54 per cent of GDP.

However, the rating agency also said that consumer price index inflation may inch up somewhat due to higher prices of services, but the impact on wholesale price index is likely to be muted due to the counter balance provided by the deflation in commodity prices and the availability of excess capacity in several manufacturing sectors.

As per India rating agency consumption in the economy will get a boost of Rs 45,110 crore or 0.30 per cent of GDP and increase savings will increase by Rs 30,710 crore  or 0.20 per cent of GDP as consumption demand in urban areas is likely rise owing to the rising income levels.  While the employees will get salary arrears from January 1, 2016, allowances will be paid only from July 1, 2016. The impact of the pay hike is expected to be less severe on state finances than expected earlier due to a lower arrear pay out.

The CNX Nifty traded in a range of 8,308.15 and 8,242.10. There were 44 stocks advancing against 7 decliners on the index.

The top gainers on Nifty were BHEL up by 5.04%, Grasim Industries up by 3.72%, Dr. Reddys Lab up by 3.37%, Axis Bank up by 3.02% and Tata Steel up by 3%. On the flip side, Sun Pharma down by 0.75%, Infosys down by 0.42%, Bosch down by 0.38%, Cipla down by 0.33% and Gail down by 0.09% were the top losers.

European markets were trading in green; Germany’s DAX increased 24.42 points or 0.25% to 9,636.69, France’s CAC gained 25.73 points or 0.61% to 4,221.05 and UK’s FTSE 100 was up by 32.82 points or 0.52% to 6,392.88.

Asian stocks closed mostly higher on Thursday, as sterling crawled higher and the yen held steady against its rivals on easing concerns over Britain's exit from the European Union. Investors shrugged off Japan’s weak industrial production data, as more signs of sluggishness added pressure on the Bank of Japan to expand its massive stimulus at a rate review on July 28-29. Meanwhile, official data showed that Japan's industrial output fell 2.3 percent in May from April when it rose 0.5 percent, marking the first drop in three months. Japanese shares erased earlier gains to end almost flat, but suffered its biggest monthly decline in four years as the shock of Britain's vote to leave the European Union sowed deep uncertainty. The Chinese stocks too ended marginally lower after three days of gains, as investors looked ahead to factory and service sector activity readings due on Friday for further direction.