BackNifty posts biggest single-day gain in seven months
Interest rate-sensitive stocks led gains on hopes that slowing inflation will prompt RBI to cut rates
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Mumbai: The CNX Nifty index of the National Stock Exchange (NSE) posted its best one-day gain in seven months on Friday, led by gains in interest rate-sensitive stocks on growing expectations that slowing inflation will prompt the Reserve Bank of India (RBI) to cut rates even before the scheduled policy meet next month.
Indian benchmark Sensex closed 1.88%, or 517.78 points higher, at 28,067.31, while the Nifty rose 1.95%, or 162.70 points, to end at 8,518.55. It is the biggest gain for the Sensex and Nifty since 8 May and 15 January, respectively.
Market breadth was positive with gainers beating losers in the ratio of 1.7:1 on BSE.
Wholesale prices denoted by the Wholesale Price Index (WPI) in Asia’s third-largest economy fell at a faster-than-expected annual rate of 4.05% in July, the ninth straight decline and their lowest in at least a decade, primarily driven by weak food and fuel prices, government data showed on Friday.
The WPI data compared with a 2.8% year-on-year fall forecast by economists in a Reuters poll and a provisional 2.4% annual decline in June.
“With inflation coming down, there is a good possibility that RBI will cut rates at the policy meet or even before that," said Rakesh Rawal, CEO of private wealth management at Anand Rathi Financial Services Ltd.
Numbers released on Wednesday showed inflation based on the Consumer Price Index (CPI) fell to 3.78% in July, down sharply from 5.4% in June and below expectations of 4% due to a high base effect, as well as a sequential drop in prices of food items.
“He (RBI governor Raghuram Rajan) has done it in the past, and this brings the confidence that it (a rate cut) could be on its way. This has brought cheer to the markets today," said Rawal.
The recent flow of macroeconomic data has reinstated confidence that the economy is well-placed on its recovery path.
“IIP (index of industrial production) numbers, followed by CPI and WPI numbers, are indicating an improvement in economic conditions," Motilal Oswal, chairman and managing director of Motilal Oswal Financial Services Ltd, said. “Due to the China meltdown, commodity prices are coming off very rapidly, which will help a country like India which is a net consumer of commodities. Crude is another positive factor."
The only potential impediment to a September rate cut could be the uncertainty around the US Federal Reserve’s expected September lift-off.
“If global markets remain well-behaved after Fed’s lift-off, we think RBI should be able to move ahead with the 25 basis points rate cut," Kotak Economic Research, an arm of Kotak Mahindra Bank Ltd, said in a 12 August note. One basis point is 0.01%.
“However, we rule out a case of inter-policy rate cut, as RBI would like to tide over the event risks—recent yuan devaluation-led emerging market currency turmoil and September 17 FOMC (Federal Open Market Committee) policy, and evaluate persistence of benign inflation signals in August CPI beyond the base effect," Kotak economists Madhavi Arora, Upasna Bhardwaj and Suvodeep Rakshit said in the note.
According to provisional data from NSE, foreign institutional investors (FIIs) bought a net of ₹ 403.76 crore of domestic shares, while domestic institutional investors (DIIs) were net buyers of such shares to the tune of ₹ 179.20 crore.
For the year to date, FIIs have pumped in a net of $13.2 billion in Indian equities, but have been net sellers so far in August to the extent of $142.8 million. DIIs, on the other hand, have been net buyers of Indian shares to the tune of ₹ 28,526.33 crore so far in 2015.
All sectoral indices closed higher on Friday. BSE realty index was the top gainer among sectoral indices, rising 7.60%. It was its best one-session gain since 15 January. BSE Bankex and BSE auto index followed next, with a 3.05% and 2.40% gain, respectively.
All 12 components of the realty index posted gains. Top realty company DLF Ltd jumped 18.28%, logging its biggest gain since May 2009. Housing Development Infrastructure Ltd jumped 11.45%.
Financial companies contributed the most to the gains for Sensex. Top lender State Bank of India advanced 3.49%, while leading private lenders ICICI Bank Ltd and HDFC Bank Ltd climbed 3.58% and 2.38%, respectively. In the auto space, Bajaj Auto Ltd raced ahead 2.80%, while Mahindra and Mahindra Ltd and Hero MotoCorp Ltd advanced 2.70% and 2.65%, respectively.
Reuters contributed to this story.
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