Indian equities continued their winning run for the fifth consecutive day, with investors hoping for positive policy action from the Reserve Bank of India (RBI) on Friday and the US Federal Reserve in the coming weeks.
The return of foreign portfolio investors (FPIs) also boosted the investor sentiment. FPIs bought Rs 8,540 crore worth of shares on Thursday, as per provisional data, marking the fourth consecutive session of buying.
Benchmark indices Sensex and Nifty rose 1% each to close at 81,765.86 points and 24,708.40 points, respectively. The gains in the last five sessions have pushed the Sensex up by over 2,700 points or 3.4%.
RBI’s rate-setting committee is set to announce its policy decision on Friday. Most market participants anticipate a cut in cash reserve ratio (CRR), which could infuse significant liquidity into the banking system. This has led to gains in bank stocks in the past few sessions.
“I would be surprised if RBI cuts interest rate, given the statements about how it would be too risky to do it. There might be some announcement regarding CRR,” said Andrew Holland, CEO of Avendus Capital Alternate Strategy.
Independent market analyst Ambareesh Baliga also expects the RBI to only tweak the CRR/statutory liquidity ratio (SLR).
Meanwhile, the ADP jobs report in the US showed lower-than-expected job growth in the private sector, leading to hopes of a rate cut by the Federal Reserve later this month. Investors will closely watch the non-farm payroll data that will paint a clear picture of the labour market condition in the US.
Shares of information technology companies were among the biggest gainers in the market on Thursday amid US rate cut hopes. The Nifty IT index ended 2% higher with Wipro, Tata Consultancy Services and Infosys rising 1.5-2.5%.
While the benchmark indices saw strong gains, the broader market underperformed on Thursday. The BSE Smallcap index rose 0.2%, while the BSE Midcap index ended 0.3% higher.
Baliga believes the ongoing recovery in the market is only an temporary bounce-back, and that the worst is not over yet.
Holland shared a similar view. “The market is still within the range of 22,500-25,000 points that we anticipated for the near term. The range may widen a bit, but nothing has changed,” he said. “There’s no fundamental reason at the moment for the market hitting the highs because earnings are under pressure and valuations are high. It is just that you’ve got a positive global backdrop and less FPI selling.”