Hopes of RBI rate cut sparks rally on Dalal Street; Infosys result, inflation data eyed

After two straight sessions of consolidation, stock markets in India went on to stage a smart performance as market participants even shrugged the disappointing industrial production numbers. The psychological 5,250 (Nifty) and 17,300 (Sensex) levels proved as strong supports as the benchmarks kept getting technical bounces from those levels.

The key gauges snapped Thursday’s session with around a percent gains as hopes of an imminent interest rate cut by India’s central bank heightened after the February IIP numbers came to the fore. The benchmark equity indices held steady despite government data indicating India's industrial output rose at a much slower than expected 4.1% in February from a year earlier.

After few moments of status quo post the IIP data release, the benchmark gauges moved northwards as markets factored in expectations of start of a monetary easing cycle after Reserve Bank of India (RBI)’s Annual Monetary and Credit Policy meet on April 17. Investors also awaited WPI Inflation data for March in order to get further cues on RBI’s stance in its monetary policy review.

After raising the policy rate 13 times since March 2010, the central bank has kept the repo rate unchanged since October 2011. The Metal sector jumped over two percent in the session being the top gainer in the BSE sectoral space while the interest rate sensitive banking counter too led the rally from the front with hefty gains of over one and half a percent amid hopes of liquidity easing by RBI.

While investors were also seen piling up positions in the Automobile and defensive-FMCG pockets which surged around one and half a percent. Though there appeared across the board buying interest, however, the Technology pockets remained chinks in the armor with around a percent cut due to fall in bellwether Infosys ahead of its fourth quarter earnings, which is schedule to be announced on April 13. Investors chose to take profits off the table from the IT counters amid expectations that companies would announce weaker growth quarter on quarter and give muted EPS guidance for FY13 due to high uncertainty.

Meanwhile, stocks from the Aviation sector like Kingfisher, SpiceJet and Jet Airways after an early rally got thrashed after reports showed that the Cabinet did not take up the issue of FDI in Aviation sector in their meeting. The Cabinet only okayed Air India’s restructuring plan while it is likely to consider the issue of FDI in Aviation in their meeting next week.

On the global front, cues from Asia remained supportive as most markets in the region settled in the positive terrain. However, gains in most markets were limited as investors treaded cautiously a day ahead of the release of Chinese first quarter economic growth figures, which are expected to confirm a slowdown this year.

The European peers after starting the session on a positive note, slipped into the negative terrain ahead of an Italian debt sale that will show whether concerns over Spain spreading to other debt-laden euro zone nations.

Back home, the NSE’s 50-share broadly followed index Nifty, jumped by a percent to settle below the psychological 5,300 support level while Bombay Stock Exchange’s Sensitive Index - Sensex amassed over a hundred and thirty points to finish above the crucial 17,300 mark. Moreover, the broader markets settled on a strong note with around a percent gains, performing in tandem with their larger peers.

The markets surged on good volumes of over Rs 1.25 lakh crore while the turnover for NSE F&O segment remained on the lower side as compared to that on Wednesday at over Rs 0.93 lakh crore. The market breadth remained positive as there were 1,712 shares on the gaining side against 1,100 shares on the losing side while 135 shares remained unchanged.

Finally, the BSE Sensex gained 133.22 points or 0.77% to settle at 17,332.62, while the S&P CNX Nifty rose by 50.00 points or 0.96% to close at 5,276.85.

The BSE Sensex touched a high and a low of 17,395.15 and 17,276.87 respectively. The BSE Mid cap and Small cap index were up by 0.85% and 1.01% respectively.

The top gainers on the Sensex were Jindal Steel up by 4.86%, Sterlite Industries up by 3.91%, Maruti Suzuki up by 3.13%, Hindalco Industries up by 3.02%, and SBI up by 2.95% while Infosys down by 1.87%, ONGC down by 1.27%, Wipro down by 1.27%, DLF down by 1.09%, and TCS down by 0.88% were the major losers on the index.

The top gainers on the BSE sectoral space was Metal up by 2.20%, Bankex up by 1.62%, FMCG up by 1.50%, Auto up by 1.25% and Capital Goods up by 1.03%, while IT down by 1.15% and TECk down by 0.78% were the top losers on the BSE sectoral space.

Meanwhile, with sharp revisions in the numbers for January, the IIP number has continued its trend of being an unpredictable number. India’s industrial production grew by a small 4.1% in February, much lower than the expectation of 6.6-6.7%. The January’s IIP number was revised to a shocking 1.1% as compared to the 6.8% put out earlier. With the revision, the actual growth in industrial activity now stands at 3% (m-o-m).

Manufacturing activity, which accounts for about 76% of industrial output in the country, grew by 4% in February compared to 7.5% year-on-year. Mining sector growth, which had been underperforming for a while, has come in at a positive 2%. Electricity production grew at a good 8% against 6.7% a year ago.

The capital goods number was the brightest spot and grew by 10.6% in February as against a contraction of 5.7% in the same month last year. Nonetheless it has been the first positive number in the past 2-3 months. Intermediate goods grew by (-) 0.6%. Mining also posted a positive number of 2.1% after many months of negativity.

The consumer durables have recorded a negative growth of 6.7% year-on-year, with the overall growth in consumer goods being (-) 0.2%. Basic goods registered a growth of 7.5%. Consumer non-durables, which were earlier reported to have grown by 42.1% in January 2012, have now been revised to 11.1%. For the month of February they grew by 5.1%. These numbers have been showing a strengthening trend in the past 2-3 months.

Core sector, which contributes almost 38% to industrial production, grew by a sharp 6.8% in February from a year earlier. Core sector comprises key infrastructure industries of coal, crude oil, natural gas, refinery products, fertilizers, steel, cement and electricity.

Since the IIP numbers still remain low, it has bolstered the expectation of the RBI going in for a rate cut in its upcoming monetary policy review. Further, not much should be read in the month-on-month data as IIP trends are more important than the monthly numbers. The stock markets barely reacted to the February industrial output numbers but the effect was reflected in bonds that rallied after the February numbers were released; consequently rupee fell marginally.

The S&P CNX Nifty touched a high and low of 5,290.60 and 5,246.75 respectively.

The top gainers on the Nifty were Jindal Steel up by 5.08%, RCOM up by 4.18%, Sterlite Industries up by 3.97%, ACC up by 3.54% and Hindalco up by 3.19%.

On the flip side, Cairn down by 2.45%, Dr Reddy down by 2.25%, Infosys down by 1.94%, Wipro down by 1.77%, and DLF down by 1.24% were the top losers on the index.

The European markets were trading mixed, as France's CAC 40 down 0.21%, Britain’s FTSE 100 up 0.57%, while Germany's DAX was down by 0.05%.

Sentiments turned bullish in the Asian region after three days of continuous downfall and stock markets in the Asian Pacific region ended on a higher note following rebound on Wall Street overnight. Barring, Seoul Composite all the Asian counters ended the day’s trade in the positive terrain, but gains were held in check as investors tread cautiously ahead of the release of Chinese first quarter economic growth figures on Friday, which are expected to confirm a slowdown this year. The Chinese government earlier this year cut its growth target for 2012 to 7.5 percent from the 8 percent level in place since 2005.

Meanwhile, Japanese Nikkei closed 0.70 percent higher despite concern over North Korea’s planned rocket launch, which has been met with a chorus of international protest while, Shanghai Composite surged over 1.80 percent as the World Bank’s downward revision of its forecast for China's 2012 economic growth heightened expectations of further monetary easing measures in the coming months. However, Seoul Composite edged lower in the trade to its fresh one-month low on Thursday as North Korea prepared to launch a long-range rocket in defiance of international warnings. The sentiments also weighed down by foreign selling as investors cashed in on blue-chips following a lengthy, earnings-backed rally with focus seen moving beyond first-quarter results.