Rate cut hopes drive up D-Street

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SummaryThe 50-share NSE index Nifty rose by 55.30 points, or 0.92 per cent to close at 6,074.65

Erasing a weekly loss, Dalal Street rallied to a two-year high as shares of car companies and lenders increased ahead of the Reserve Bank of India’s monetary policy meeting next week.

After falling by 103 points on Thursday, the Sensex rose by 179.75 points, or 0.90 per cent to end at 20,103.53 on heavy buying in interest-sensitive stocks ahead of the RBI credit policy next week and better than expected earnings by Maruti Suzuki. The 50-share NSE index Nifty rose by 55.30 points, or 0.92 per cent to close at 6,074.65. The somewhat favourable inflation developments seen in recent months could nudge the RBI toward a 25 basis points rate cut in the January policy meeting but it’s likely to be a much tighter call than the market thinks. Of course, it has been clear for a while that the central bank is keen to cut rates.

Interest rate sensitive banking stocks rose as the RBI is seen cutting its key policy rate — repo rate — by 25 basis points at the third quarter monetary policy review on Tuesday. State Bank of India (SBI) rose 2.33 per cent. Among other PSU bank stocks, Bank of India, Bank of Baroda and Punjab National Bank gained by 2.62 per cent to 4.55 per cent. Union Bank of India jumped 3.26 per cent. Among realty companies, DLF, Sobha Developers, DB Realty and Unitech gained by 3.5 per cent to 6.39 per cent.

“With most frontline companies having reported their numbers, the trigger for the market would be the RBI monetary policy meet. If there is no rate cut, then interest — sensitive stocks may decline,” said Sanjeev Zarbade, vice president, Kotak Securities. In its December policy meeting, the RBI guided that the focus of monetary policy will be shifting toward growth in 2013.

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