Stock markets are banking on a bigger rate cut in early April. With bulls charging with renewed fervour, key benchmark indices gained in a truncated trading week which ended on Wednesday on expectations of a bigger rate cut of 50 basis points from the Reserve Bank of India (RBI) at its monetary policy review on April 5.
On Wednesday, market kept its positive strike rate for the fourth straight session as the benchmark Sensex ended with a 7-point gain at 25,338, with some late buying coming to the rescue amid a higher opening in Europe.
Anticipating a big move, key indices gained in all the three sessions of the week. The stock market will remain shut on Thursday on account of Holi and again on Friday on account of Good Friday.
The barometer Sensex rose 384.82 points or 1.54 per cent to settle at 25,337.56. The 50-unit Nifty 50 index gained 112.15 points or 1.47 per cent to settle at 7,716.50. The BSE Mid-Cap index rose 2.17 per cent and the Small-Cap index by 1.87 per cent, outperforming the Sensex.
Trading for the week started on a strong note. Expectations of a bigger rate cut of 50 basis points from the RBI triggered a strong rally on the domestic bourses on Monday and the Sensex rose 332.63 points.
Significantly, foreign investor are coming back to India post budget, and till date they have pumped more than Rs 22,000 crore in March compared to outflows of Rs 8,000 crore in February and Rs 11,500 crore in January. “The next leg of the rally will depend on the RBI’s monitory policy decision on April 5. Currently, we can expect a dovish policy with a cut of 25 bps. Any positive outcome will keep the uptrend open till 7,900-8,000 in the near term for Nifty,” said Vinod Nair, head-fundamental research, Geojit BNP Paribas Financial Services.
In a report released this week, Bank of America Merrill Lynch said: “We hike our FY2017 RBI rate cut forecast to 50 bps from 25 bps. We see 25 bps each on April 5 and August. Why? Recovery is slackening.”
Bank stocks edged higher on expectations of a bigger rate cut after the government announced reduction in interest rates on various small savings schemes for the first quarter of 2017 based on the prevailing G-Sec (government securities) yields. Banks have been citing high interest rates on small saving schemes as a reason for the weak transmission of the RBI rate cuts. Though the RBI has cut rates by 125 bps in 2015, lending rates have fallen only 60-70 bps.
Further, last week, the US Fed cut in half the number of rate hikes it predicts for the rest of this year, weakening expectations for a move in either April or June. But in the past two days several officials have shored up the case for pushing on regardless of the volatility that has gripped financial markets this year. Importantly, comments by Chicago Fed president Charles Evans suggested market pricing for just one more hike this year falls short of what one of the least aggressive supporters of tight policy thinks is appropriate.
Meanwhile, snapping its two-day losing streak against the American currency, the rupee recovered by seven paise to 66.64 on fag-end selling of dollars by banks and exporters in view of persistent foreign capital inflows into equity market.
The rupee resumed lower at 66.75 as against Tuesday’s closing level of 66.71 at the Interbank Foreign Exchange market and dropped further to 66.95 on initial dollar demand from banks and importers on the back of higher greenback in the overseas market.
However, it recouped afterwards to 66.62 on fag-end selling of dollars by banks and exporters on hopes of more foreign funds into domestic equity market before ending at 66.64, showing a gain of 7 paise or 0.10 per cent.
It had dropped by 21 paise or 0.32 per cent in last two days.