In its biggest single-day rally in over 5 years, benchmark Sensex today zoomed by 728.73 points to reclaim the 28,000-mark on massive buying across sectors after RBI Governor Raghuram Rajan sprang a surprise by cutting interest rates to boost growth.
Markets opened with a gap-up of nearly 500 points. Before trading began Rajan, who had focused on quelling inflation since taking office in September 2013, lowered the benchmark repurchase rate to 7.75 per cent from 8 per cent, the first reduction since May 2013. As the day progressed, participants, both domestic and foreign, stepped up purchases.
Investor wealth reclaimed the Rs 100-lakh crore mark. Buying was seen across-the-board as all 12 BSE sectoral indices ended with gains of between 0.44-7.99 per cent.
The BSE Sensex resumed at 27,831.16 and then touched over one-month intra day high of 28,194.61 before closing at 28,075.55, a jump of 728.73 points or 2.66 per cent. Previously, it had soared by 2,110.79 points on May 18, 2009. HDFC, ICICI Bank, ITC, RIL, SBI, HDFC Bank and L&T led the 28 gainers in the 30-share BSE Sensex.
The NSE Nifty opened at 8,424.50 and surged to 8,527.10 before closing at 8,494.15, up 216.60 points or 2.62 per cent. As many as 46 constituents surged in the 50-share Nifty index.
“We believe that this is a beginning of a big rate cut cycle. We expect a further 125 bps over the next 12 months,” said Morgan Stanley analyst Chetan Ahya in a report.
The rate cut ahead of a scheduled RBI policy meeting on February 3 will result in “more money in the hand of the consumers,” Finance Minister Arun Jaitley said, while bankers started cutting rates within hours of the announcement.
Besides, a strengthening rupee which was trading over one per cent higher at 61.35 against the dollar (intra-day) also buoyed the trading sentiments.
Most Asian stocks ended higher after India cut rates. Key benchmark indices of China, Hongkong, Japan, Singapore and South Korea rose by 0.03 per cent to 3.54 per cent while Taiwan’s weighted average eased by 0.16 per cent.
European markets were trading mixed as investors weighed company earnings results. Key benchmark indices in France and the UK eased by 0.47 per cent to 0.56 per cent while Germany’s DAX was quoting higher by 0.13 per cent.
Meanwhile, provisional data showed Foreign Portfolio Investors sold Indian shares worth net Rs 69.7crore yesterday.
Coming back to the Sensex, major gainers include HDFC (7.16 per cent), SBI (5.02 per cent), ICICI Bank (4.60 per cent), L&T (3.61 per cent),
Tata Power (3.55 per cent), RIL (3.54 per cent), M&M (3.10 per cent), Maruti Suzuki (3.04 per cent), ITC (2.76 per cent), Axis Bank (2.57 per cent), HDFC Bank (2.56 per cent) and Tata Motors (2.33 per cent). The surprise rate cut has lifted spirits, say experts.
“Indian markets were languishing for past few sessions due to lack of any triggers. This is a good enough trigger for markets to cheer. RBI has let down its guard a bit and clearly spelt out its comfort on inflation. Now, if reforms also come in, India could be in a sweet spot for this year as well as beyond,” said Kotak Securities CEO Kamlesh Rao.
Among the S&P BSE benchmark indices, Realty rose by 7.99 per cent, followed by Bankex 3.29 per cent, Capital Goods 2.40 per cent, Auto 2.13 per cent, Power 2.10 per cent, Oil&Gas 2.01 per cent, FMCG 1.35 per cent and Consumer Durable 1.11 per cent.
Total market breadth turned positive as 1,720 stocks ended in the green, 1,174 finished in the red and 112 ruled steady. Total turnover rose to Rs 4,305.55 crore from Rs 3,205.62 crore yesterday.
The benchmark BSE index rose as much as 3.1 percent during the day before ending 2.66 percent higher.
The broader NSE index ended up 2.62 percent after earlier rising as much as 3 percent.
The indexes marked their biggest daily gains since May 9, 2014.
Market Outlook by Vinod Nair, Head-Fundamental Research, Geojit BNP Paribas Financial Services:
The huge market gap today tells us that the rate cut has come as a healthy surprise. Based on last couple of inflation data, there was already room for lowering rates as much as 50bps, but the timing was unknown. Whereas 25bps cut is a curtain raiser. Market was closely looking at global risk believing that RBI will cut rates after understanding global rate cycle, CPI base impact, currency volatility and Union budget (capital investment). Provided global factors are managed well by the end of January month (ECB meet, Grexit and Fed rate decision), we can expect more action by RBI (pre or post budget).
Market Wrap Up by Alex Mathews, Head Research, Geojit BNP Paribas Financial Services:
The markets today witnessed a gap up opening on the back of the surprise move by RBI. The central bank reduced its key policy rate, repo rate by 25 basis points from 8% to 7.75% with immediate effect. The reverse repo got adjusted at 6.75%. Sensex rallied to its best since September 2013 whereas Nifty crossed its 8500mark and finally settled at 8494.15.
The market breadth stood positive as there were seen 1721 stocks advancing against 1175 stocks declining. The Nifty volatility index, India VIX stood at 16.16 down around 6.30%.
The buying for the day was mainly seen in the rate sensitive stocks like banks, realty, auto and capital goods stocks. The Bank Nifty was seen rising to its life high of 19517 on the day.
The FIIs were net sellers in the capital market segment, sold shares worth Rs 69.74 crore on Wednesday, 14 January 2015. On the other hand the DIIs were also net sellers on 14 January 2014, sold shares worth Rs 223.98 crore as per the provisional data from the stock exchanges.
Tomorrow companies like Axis Bank, DHFL, Wipro, V-Guard, NIIT LTD, Oberoi Realty, Reliance, RS Software and INOX Leisure may come out with their earnings.
Perspective on markets: Kamlesh Rao, CEO, Kotak Securities
Not entirely an unexpected move, RBI has cut repo rate by 25bps to 7.75%. It has kept cash reserve ratio (CRR) unchanged at 4% of net demand and time liabilities (NDTL).
We believe that, RBI has stuck to its earlier guidance. It had said that, if the inflation numbers (net of base effects) trends lower and if the Government actions are in the direction of reforms and fiscal rectitude, it will act even outside the policy meeting.
CPI and WPI inflation have come off. To some extent, lower than expected inflation has been enabled by the sharper than expected decline in prices of vegetables and fruits since September, reducing price pressures in respect of cereals and the large fall in international commodity prices, particularly crude oil. On the other hand, the Government has reiterated its commitment to adhering to its fiscal deficit target.
In terms of markets, Indian markets were languishing for the past few sessions due to lack of any triggers. This is a good enough trigger for markets to cheer. The RBI has let down its guard a bit and clearly spelt out its comfort on inflation. Now, if the reforms also come in, India could be in a sweet spot for this year as well as beyond that.
Take the poll and tell us whether RBI rate cut will spark new life in stock markets:
Sectorally, Banks, Auto and other interest-rate sensitive sectors will be positive. Also, several debt-heavy companies in sectors like infrastructure and capital goods will be in focus.