Markets trade at day’s high levels in late afternoon session

Indian equity markets traded at day’s high levels in late afternoon session amid value buying by investors. Traders turned their focus towards Federal Reserve’s policy meeting. Traders were seen piling up positions in Banking sector’s stocks. Investors overlooked report that apex exporters body FIEO said the escalating geopolitical tension may have implications for the country's exports in the first quarter of 2024-25 as it is likely to impact global demand. On the global front, Asian markets were trading mostly in green with Japanese markets closing for a holiday. Traders looked ahead to the Federal Reserve's policy meeting on Wednesday after the central bank's preferred inflation gauge largely met expectations. European markets were trading higher extending last week's strong run, with euro zone economic data and a U.S. policy decision in focus.

The BSE Sensex is currently trading at 74605.61, up by 875.45 points or 1.19% after trading in a range of 73922.34 and 74636.29. There were 25 stocks advancing against 5 stocks declining on the index.

The broader indices were trading in green; the BSE Mid cap index gained 0.69%, while Small cap index was up by 0.14%.

The top gaining sectoral indices on the BSE were Bankex up by 2.58%, PSU up by 1.12%, Oil & Gas up by 1.11%, Utilities up by 0.88% and Energy was up by 0.77%, while Realty down by 0.98% and FMCG was down by 0.10% were the few losing indices on BSE.

The top gainers on the Sensex were ICICI Bank up by 4.95%, SBI up by 3.28%, Axis Bank up by 2.65%, Indusind Bank up by 2.48% and Ultratech Cement up by 2.29%. On the flip side, HCL Tech down by 5.76%, ITC down by 0.61%, Wipro down by 0.34%, Maruti Suzuki down by 0.17% and Bajaj Finserv down by 0.03% were the top losers.

Meanwhile, the Reserve Bank of India in its latest working paper titled ‘Equity Markets and Monetary Policy Surprises’ has said that equity markets are impacted more by the expectations of future monetary policy than the policy rate surprises on the day of announcement of the policy by the Reserve Bank. 

This paper studies the impact of monetary policy announcements on the returns and volatility in the BSE Sensex by decomposing changes in Overnight Indexed Swap (OIS) rates on policy announcement days into target and path factors. The target factor captures the surprise component in central bank policy rate action, while the path factor captures the impact of central bank communication on market expectations regarding the future path of monetary policy.

The empirical analysis using daily data suggests that equity returns are impacted only by the path factor (i.e., market’s expectations of future monetary policy trajectory), while both target and path factors (both of which capture the unanticipated component of monetary policy) impact the volatility in equity prices. Further, an event study analysis undertaken by constructing short duration windows around the monetary policy announcements using intraday data also indicates that the path factor helps explain changes in equity returns.

According to the working paper, while the short duration windows are aimed at controlling for other potential drivers of equity prices, it may be noted that the monetary policy announcements are accompanied by regulatory and developmental measures which can also impact markets. The sparse trading on occasions in the OIS markets as well as other domestic and global developments during the narrow window can also impact the analysis.

The CNX Nifty is currently trading at 22623.30, up by 203.35 points or 0.91% after trading in a range of 22441.90 and 22628.40. There were 31 stocks advancing against 19 stocks declining on the index.

The top gainers on Nifty were ICICI Bank up by 4.87%, SBI up by 3.33%, Axis Bank up by 2.60%, Indusind Bank up by 2.42% and Ultratech Cement up by 2.39%. On the flip side, HCL Tech down by 5.90%, Apollo Hospital down by 4.59%, HDFC Life Insurance down by 2.70%, Bajaj Auto down by 2.14% and LTIMindtree down by 1.29% were the top losers.

Asian markets were trading mostly in green; Taiwan Weighted added 375.01 points or 1.83% to 20,495.52, Jakarta Composite gained 108.17 points or 1.54% to 7,144.25, Hang Seng advanced 95.76 points or 0.54% to 17,746.91, KOSPI increased 31.11 points or 1.16% to 2,687.44 and Shanghai Composite was up by 24.4 points or 0.78% to 3,113.04. On the flip side, Straits Times was down by 4.98 points or 0.15% to 3,275.12.

European markets were trading higher; UK’s FTSE 100 increased 40.97 points or 0.5% to 8,180.80, France’s CAC rose 21.66 points or 0.27% to 8,109.90 and Germany’s DAX was up by 24.4 points or 0.13% to 18,185.41.