Intensifying rate cut hopes spark sharp rally on D-Street; rate sensitives shoot up

After suffering over a percent laceration in last trading session, stock markets in India showed a courageous performance as they not only regained all the ground lost in previous session but also settled in close proximity with the psychological 5,150 (Nifty) and 17,000 (Sensex) levels. The benchmark equity indices showed renewed vigor since afternoon trades and rallied vivaciously by over one and half a percent following supportive cues from the European markets.

Domestic markets got off to an encouraging start as cues across global space remained supportive. Markets across the Asian region largely traded on a positive note as investors were influenced by overnight rally in US markets amid intensifying hopes that additional stimulus is on its way from the US Federal Reserve following the initial jobless claims data, which rose for the fifth time in last six weeks and as consumer prices fell 0.3 percent in May, the biggest drop in more than three years.

Markets’ mood was also buttressed by reports that central banks from major economies are preparing for coordinated action to provide liquidity if needed after the Greek election this weekend.

On the domestic front, after getting the disappointing industrial production numbers and the slightly below 5 percent threshold - core inflation number, market participants grew increasingly hopeful that the Reserve Bank of India would resort to monetary easing and cut key interest rates by 25 basis points. This propelled the interest rate sensitive Automobile, Banking and Realty counters in the range of 1-3%.

Some degree of political uncertainty too has had its toll on sentiments amid constant developments in the political circles on presidential election. Meanwhile, cues from the money market too remained positive as rupee has come off the day’s lows and showed signs of appreciation against the US dollar. Besides, corporates’ advance tax payment numbers too did not disappoint market-men as most of leading corporates paid marginally higher advance tax in the first quarter of the current fiscal despite widening economic gloom.

Moreover, stocks from the fertilizer counter traded on a somber note with hefty cuts after India’s Cabinet Committee on Economic Affairs (CCEA) deferred the Fertilizer Ministry’s proposal to raise the retail prices of urea by 10% to Rs 5,841 per tonne for the financial year 2012-13. Though across the board buying was evident on the BSE sectoral space, however some individual names including Bajaj Auto and Sterlite Industries bucked the trend and closed with notable losses.

On the global front, markets across the Asian showed optimistic trends while European markets too got a positive start and the major equity indices there managed to capitalize on the initial momentum amid tentative recovery in investors’ appetite for riskier asset classes like equities amid expectations that central banks will act collectively to prevent the global economy from destabilizing from the outcome of Greece's election this weekend.

Back home, the NSE’s 50-share broadly followed index Nifty, got underpinned by over one and half a percent to settle below the psychological 5,150 support level while Bombay Stock Exchange’s Sensitive Index - Sensex jumped closed to three hundred points to finish just below the crucial 16,950 mark. Moreover, the broader markets too settled on positive note with gains of around half a percent but failed to match the fervor with which their larger peers rallied.

The markets soared on good volumes of over Rs 1.50 lakh crore while the turnover for NSE F&O segment also remained on the higher side as compared to that on Thursday. The market breadth remained optimistic as there were 1,525 shares on the gaining side against 1,165 shares on the losing side while 145 shares remained unchanged.

Finally, the BSE Sensex surged 271.95 points or 1.63% to settle at 16,949.83, while the S&P CNX Nifty soared by 84.30 points or 1.67% to close at 5,139.05.

The BSE Sensex touched a high and a low of 16,967.76 and 16,701.28 respectively. The BSE Mid cap index was up by 0.57% and Small cap index up by 0.46%.

Tata Motors up 5.75%, ICICI Bank up 3.11%, Coal India up 2.72%, Hindalco Industries up 2.70% and Maruti Suzuki up 2.70% were the major gainers on the Sensex, while Sterlite Industries down 1.57%, Bajaj Auto down 1.41% and ONGC down 0.67% were top losers on the index.

The top gainers on the BSE sectoral space were Auto up 2.57%, Bankex up 2.19%, Realty up 1.78%, Capital Goods up 1.54% and FMCG up 1.43%, there was no loser on the BSE sectoral space. 

Meanwhile, Indian economy is facing stagflation, as per the global financial services firm Moody's, where growth is slow and inflation high and also cautioned that the Reserve Bank of India (RBI) should not be too aggressive in slashing interest rates in its policy meet.

The agency is of the view that with headline inflation inching up to 7.5% y-o-y in May due to supply-side constraints, along with rupee depreciating to record low-levels, sluggish prospects of growth and industrial production, a further rate cut will have an upward pressure on inflation.

The recent fall in the rupee will further push the prices upwards, particularly imported goods and commodities valued in dollar. By adding further it stated, the rupee, which is sitting 15% below its peak of late-February, will make sure that inflation remains in the 7-8% range for an additional 6-months.

The agency cautioned that the RBI should not be ‘too aggressive’, when inflation remains a problem. However, with economic growth slowing, the RBI should accept the higher inflation and go for a marginal rate-cut.

The S&P CNX Nifty touched a high and low 5,146.20 and 5,069.15 respectively.

The top gainers on the Nifty were Grasim up 5.75%, Tata Motors up 5.65%, Ambuja Cement up 4.10%, Reliance Infra up 3.69% and ACC up 3.37%. On the flipside, Sterlite Industries down 1.96%, Sesa Goa down 1.33%, Bajaj Auto down 0.77% and ONGC down 0.47% were the top losers on the index.

The European markets were trading in green, as France's CAC 40 up 1.63%, Germany's DAX up 0.96% and United Kingdom’s FTSE 100 up 0.46%.

Sentiments turned bullish in the Asian region and most of the Asian equity indices ended the day’s trade in the positive terrain on last trading day of the week amid hopes that the US Federal Reserve will embark on a fresh round of economic stimulus and Greece will return a pro-austerity government in weekend polls. Meanwhile, Hong Kong stocks jumped over two percent following a rally on Wall Street amid hopes for a fresh stimulus drive by the US Federal Reserve while, Nikkei closed flat, nudging 0.43 points up to 8,569.32, with market men unimpressed with the Bank of Japan’s decision to hold off any fresh stimulus moves for the time being.

However, Seoul shares dipped on Friday, underperforming Asian peers, dragged by selling by foreign investors, while a 2.90 percent decline in index heavyweight Samsung Electronics also added to the pressure.