Rate cut expectation swells equity markets

bseBy Rohit Vaid

Mumbai : (IANS) Expectations of an interest rate cut, coupled with healthy foreign fund inflows and value buying, buoyed the Indian equity markets during the just concluded weekly trade.

The Indian equity markets posted their fourth consecutive weekly gains during the week ended March 23. By some estimates, the domestic equity markets have delivered 10-12 percent in positive returns over the last one month alone.

In sync with headline indices, broader markets too ended higher. They rose by 1.5 percent, led by buying in high beta stocks.

Healthy buying was witnessed in reality, government banks, capital goods, metals and cement stocks.

However, gains were capped by negative global events like increased chances of a US rate hike and the Brussels terror attacks.

Further, a weak rupee and caution ahead of the derivatives expiry weighed heavy on the equity markets. The key Indian equity indices had declined for the better part of the truncated week.

The Indian equity markets were closed from March 24-25, on account of Holi and Good Friday.

The barometer 30-scrip sensitive index (Sensex) of the Bombay Stock Exchange (BSE) gained 385 points or 1.54 percent to 25,337.56 points during the just concluded weekly trade.

Similarly, the wider 50-scrip Nifty of the National Stock Exchange (NSE) edged-up by 112.15 points or 1.47 percent to 7,716.50 points.

Vaibhav Agarwal, vice president and research head at Angel Broking, pointed out that traders remained reluctant to maintain their positions over the last weekend of the current financial year.

“Some selling pressure was witnessed, but the benchmarks managed to close in the green in all the sessions on the back of a late recovery in the last two sessions,” Agarwal told IANS.

Moreover, investor sentiments were buoyed on hopes that the Reserve Bank of India (RBI) will ease its lending rates in the upcoming monetary policy review.

Investors expect that the union budget’s fiscal prudence measures, reduction in interest rates on small savings and lower inflation will allow the RBI to further ease key lending rates.

The RBI will conduct its first bi-monthly monetary policy review for 2016-17 on April 5.

“Government authorities seem to be driving hard the point that now it is the central bank’s turn to act,” elaborated Pankaj Sharma, head of equities for Equirus Securities.

Nitasha Shankar, vice president for research with YES Securities stated that headline index Nifty approached its upper end of the downward channel which is placed at 7,880 points.

“A breakout from this channel could trigger a bullish trend reversal putting a halt to the extended ongoing corrective phase. Failure to do so may continue the complex corrective pattern,” Shankar noted.

According to Shankar, during the just concluded week, all major sector-based indices made gains.

“Reality, PSU banks, metal and cement indices outperformed rest of the market,” Shankar informed.

Nevertheless, the domestic positive cues were countered by global headwinds like the Brussels terror attacks.

“Global markets extended gains and are inching back from an initial sell off that followed deadly attacks in Brussels,” Dhruv Desai, director and chief operating officer, Tradebulls, told IANS.

“The fourth consecutive positive week shows markets moving in a strong up trend. Advance and decline still in the favour of bulls.”

In addition, investors were seen hesitant to chase prices due to the heightened chances of a US rate hike next month.

A hike in the US interest rates is expected to lead away Foreign Portfolio Investors (FPIs) from emerging markets such as India.

Anand James, co-head, technical research desk with Geojit BNP Paribas Financial Services, told IANS: “Hawkish comments from US Fed officials set the tone for the week, inviting the investors to cash in on the steep rallies of the previous weeks.”

Besides, a weak rupee kept investors unnerved and capped gains through the week’s trade.

“The Brussels airport blast did prompt profit booking from risky assets, though the impact was sustained in US dollar, which rose due to its appeal as a safe haven asset, pushing rupee towards the 67 mark,” James cited.

On a weekly basis, the rupee weakened by 12 paise to 66.62-63 (March 23) against a US dollar from its previous close of 66.50-51 (March 18) to a greenback.

The rupee weakness was attributed to a strong US dollar. The US dollar has strengthened on the back of increased chances of a hike in US interest rates in April.

In contrast, an increase in foreign fund inflows supported prices and lifted equity markets.

The National Securities Depository Limited (NSDL) figures showed that the FPIs bought Rs.6,340.82 crore or $952.79 million in the equity and debt markets from March 21-23.

Data with stock exchanges disclosed that the FPIs invested in stocks worth Rs.3,468.68 crore during the week under review.

Conversely, the data showed that domestic institutional investors (DIIs) sold stocks worth Rs.2,571.72 crore.

Sharma credited the healthy market returns on the fresh inflows from foreign investors.

“We think the most important change which has been driving this market performance is linked to fresh inflows from foreign investors,” Sharma explained.

“As risk appetite increased among global investors, they started pumping in more money into emerging markets, as suggested by close to $2 billion of net inflows into Indian markets by foreign investors.”


Leave a Reply

Your email address will not be published. Required fields are marked *