Riding on the continued buying by foreign portfolio investors and expectation of a rate cut by the Reserve Bank in its monetary policy meeting this week, the benchmark Sensex at the BSE gained 184.78 points on Tuesday to close at an all-time high of 39,056.65. The broader Nifty at the National Stock Exchange too gained 44.05 points or 0.4 per cent to close at 11,713.20, marginally short of its all-time high value.
According to the provisional data available at stock exchanges, the FPIs invested Rs 543 crore in Indian equities on Tuesday, taking the overall inflow in April to Rs 10,094 crore.
The net FPI inflow since February 1, 2019, now stands at a high of Rs 61,293 crore. The strong FPI inflow also resulted into strong gains for rupee that closed at 68.74 against the US dollar after rising 40 paise on Tuesday. Since February 1, the rupee has regained Rs 2.2 or 3.1 per cent against the dollar. While FPI inflow in March alone amounted to Rs 33,980 crore, Sensex has risen 3,189 points since March 1.
On Tuesday, while Sensex hit a high of 39,121.69 before closing at 39,056, Nifty rose to a high of 11,729.35 before closing at 11,713.20. Among the Sensex constituents, Tata Motors emerged as the biggest gainer with a jump of 8.4 per cent. Other major gainers were Bharti Airtel (5.1 per cent), TCS (2.4 per cent). Bajaj Finance, PowerGrid, IndusInd Bank, HDFC and State Bank of India.
Profit booking by domestic investors may lead to minor correction
An expected cut in interest rates by the RBI provided additional support to the markets alongside the continuous flow of FPI funds, as the market expects that a cut in rates will boost consumption and economic activity. While there is a sense in the market that the rise in Sensex and Nifty may continue for now, there may be some profit booking by domestic investors at the same time which may lead to some dips.
Bucking the overall trend, Bajaj Auto, Sun Pharma, Vedanta, Tata Steel, HCL Tech and HDFC Bank shares slipped on account of profit-booking. Among the sectors, realty, telecom, auto and IT emerged as prominent gainers. Meanwhile, oil & gas, FMCG and basic materials indices were in the red. While FPI inflows have given a boost to the markets, analysts said that expectation of rate cut by the RBI and revival in earnings has further improved market sentiments.
The RBI’s monetary policy committee started its 3-day deliberations for the first bi-monthly monetary policy
of 2019-20 on Tuesday. Expectations of a rate cut are riding high in the market and there is a general sense that the key lending rate may be cut by 25 basis points to boost economic activity. In a report issued on Tuesday, Care Ratings said, “The monetary policy meet is widely expected to see the RBI going in for a rate cut. This is based on the premise that the CPI inflation has remained well within the RBI’s four per cent target since the last 7 months and is likely to remain range bound in the next 2-3 months. In addition, subdued domestic economic growth could also prompt the RBI to lower its interest rates. We, therefore, expect a rate cut of 25 bps in this credit policy.”
Besides, the domestic markets have received support from robust global sentiment as investors were encouraged by signs of strengthening economic indicators that showed improvement in manufacturing activity in China and the United States.
Asian bourses followed Wall Street gains on Tuesday amid strong indications of improving global macro-economic picture. On Wall Street, the Standard & Poor’s 500 index rose for a third straight day on Monday, gaining 1.2 per cent, and Dow Jones Industrial Average jumped 1.3 per cent.
Taking cues from the US stocks, the Shanghai Composite index rose 0.3 per cent, Hang Seng edged up 0.21 per cent and Kospi advanced 0.4 per cent. While, Japan’s Nikkei 225 was flat.
As rupee recovered 40 paise to finally settle at 68.74 against the US dollar, market participants said that foreign fund inflows in the debt and equity markets helped the rupee recover along with support from the Reserve Bank’s announcement of a second tranche of dollar-rupee swap.
The RBI on Monday said that it will inject long-term liquidity worth $5 billion in banking system through dollar-rupee swap for a tenure of three years on April 23, the second such auction within a month.
V K Sharma, head PCG & Capital Markets Strategy, HDFC Securities, said, “Sovereign bonds gain as RBI’s currency swap will add to liquidity in the banking system.” He further added that “the swap auction comes ahead of the important RBI policy statement that is scheduled this week. The central bank is expected to cut rates and a dovish statement could put pressure on the rupee”.