Stock markets on Monday zoomed to their fresh life-time closing peaks and the benchmark bond yield fell below the seven per cent level as hopes of another rate cut by the Reserve Bank of India and continuity in reform measures by the new central government boosted the sentiment. The BSE Sensex jumped 553 points to close above 40,000 at a record high of 40,267.62 while the 50-share Nifty surged nearly 166 points to settle at 12,088.55, all-time closing peak for the index.
The yield on the 10-year government bond yield closed below 7 per cent at 6.982 per cent for the first time since November 2017 as falling crude oil and slowing economic growth boosted speculation of monetary easing by the RBI in its next bi-monthly policy. Yields had fallen by 42 basis points in May, the most since November 2016, aided by foreign inflows after Prime Minister Narendra Modi’s election win.
The Indian rupee strengthened by another 44 paise to close at 69.26 to the US dollar in line with the smart rally in domestic equities amid hopes of a rate cut. “Falling crude oil and slowing economic growth boosted speculations of monetary easing by the RBI in its next bi-monthly policy. The market is already pricing 25 bps cut interest rate and surplus liquidity conditions after majority government at the Centre,” said V K Sharma, Head PCG & Capital Markets Strategy, HDFC Securities.
Despite weak global cues, investors were buoyed by falling crude oil prices, foreign fund inflows and hopes of rate cut by the RBI. “It is overwhelming to see the depth of the market, which easily overcame subdued domestic economic data and global headwinds like tariff war, by sharp fall in the most worrisome oil prices and the hope about the upcoming Budget and the RBI policy. The grip of the rally seems sustainable in spite today’s weak economy data, as the horizon looks promising led by supportive government actions while FIIs have turned more solid over India’s outlook,” said Vinod Nair, Head of Research, Geojit Financial Services.
India which imports roughly 80 percent of its oil requirement is set to benefit as crude oil prices have fallen by about 15 per cent since April 30. Further, foreign investors pumped in a net amount of over Rs 9,000 crore into the Indian capital markets in May on expectations of more business-friendly measures and reforms following the NDA’s victory in the general elections.
The Sensex gained from a rally in heavyweights like HDFC, Reliance Industries and TCS. Hero MotoCorp topped the Sensex chart by surging 6.01 per cent. Sectorally, BSE auto, healthcare, energy, consumer durables and metal were the top performers with gains of up to 1.93 per cent. However, broader indices BSE midcap with 0.90 per cent rise and smallcap with 0.48 per cent gains underperformed the benchmark Sensex.
Jayant Manglik, President, Religare Broking, “despite negative global cues, the Indian equity benchmark indices started the week on a positive note. We continue to maintain our cautious stance on the markets at higher levels in the near term. The market participants would keep an eye on the RBI’s monetary policy on June 6 as it would provide further direction to the markets. Further, domestic macro data, global developments, especially with respect to US-China trade talks and movement of crude oil prices would continue to be on investor’s radar.”
Analysts are betting on a Repo rate cut by the RBI this week, especially after a disappointing GDP print for the March quarter. Data from Central Statistics Office (CSO) showed that India’s economic growth rate slowed to five-year low of 5.8 per cent during January-March quarter of 2018-19. The growth rate of the economy has weakened mainly due to poor performance in the farm sector as well as in the manufacturing sector. The central bank had cut the Repo rate by 25 basis points each in its last two policy reviews.
According to Umesh Mehta, Head of Research, Samco Securities, though the financial sector is rejoicing, the real economy is struggling. “May auto sales numbers are out and majority of the companies have shown a deterioration in sales …”