Rate cut hopes boost Sensex by 421 pts

The 50-scrip NSE index Nifty also spurted 128.55 points or 2.77 per cent to one-week high of 4,765.30.

Written by ENS Economic Bureau | Mumbai | Published: January 4, 2012 12:48:52 am

Bulls were back in action on Tuesday with the Reserve Bank of India’s signal that it may soon start lowering lending rates. Market sentiment was also boosted by steady global markets while the government’s move to allow foreign individuals to directly buy equities also added to the uptick.

With sustained buying support keeping bears away,the benchmark Sensex opened strong on firm Asian cues and gained further to close the day at 15,939.36,up 421.44 or 2.72 per cent. The 50-scrip NSE index Nifty also spurted 128.55 points or 2.77 per cent to one-week high of 4,765.30.

The strong rally added more than Rs 1.5 lakh crore to investors’ wealth,led by strong gains in top Sensex heavyweights such as ICICI Bank,Reliance Industries and Infosys. All the 13 sectoral indices ended with gains,led by metals,capital goods,banking and realty stocks. The main stock indices extended gains from the previous session on the back of encouraging data on the manufacturing sector from across the globe. The advance witnessed in the first two sessions of 2012 may not be sustainable if some of the pressure points like widening deficits for India and the euro area debt crisis don’t get addressed quickly,analysts said.

Analysts said the market mood was influenced by the RBI Governor’s comments that the central bank is looking at easing its lending rates on concerns about economic growth,and the government’s decision to allow Qualified Foreign Investors to buy stocks directly from January 15.

Amar Ambani,head of research,IIFL,said,“The RBI’s policy meet later this month will be a very important event amid growing expectations of a reversal in the central bank’s hawkish stance. Before that markets will have to digest the latest statistics on IIP and inflation. Again,both these numbers should show improvement,giving much-needed elbow room for monetary easing. The corporate earnings season will also kick off shortly. Infosys results are due on January 12.”

“Interest rate sensitive sectors stocks continued to move up after RBI Governor’s statement that the central bank may look at easing interest rates at its upcoming quarter review on January 24,” said Alex K Mathews,head technical and derivatives research,Geojit Financial Services.

BNP Paribas forecast the BSE index to trade in a range of 14,000-19,000 in the coming months and touch 18,500 by the end of 2012,helped by decline in inflation and interest rates and “eventual recovery” in some areas of infrastructure construction.

“Some domestic economic drivers are obvious — declining inflation and easing of the policy cycle are some of them,” it said in a note. “We expect a mild recovery in the capex cycle from 2H12 (second half of 2012) and the earnings downgrade cycle to continue in the near term,but to stop from around mid-2012.”

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