Experts, however, say crude remains volatile and may lead RBI to wait and look at data for another quarter before reducing rates.
The benchmark equity index, Sensex, on Tuesday rallied nearly 465 points after falling retail inflation raised hopes of a rate cut by the Reserve Bank of India (RBI), leading to intense buying in rate-sensitive stocks.
The Sensex settled 464.77 points, or 1.30%, higher at 36,318.33, snapping three sessions of decline and clocking its sharpest gains in a month. The broader NSE Nifty rallied 149.20 points, or 1.39%, to finish at 10,886.80 points.
Meanwhile, the rupee lost 13 paise to close at fresh one-month low of 71.05 against the US dollar amid dollar strengthening and crude oil prices surging.
IT stocks firmed footing, with Nifty IT index rising as much as 2.3%. Wipro shares advanced 3.8% in their best intraday percentage gain since December 13, after it said on Monday that a bonus share issue will be considered in its board meeting on Friday.
Banks also cheered the inflation relief with most of them trading in the green.
Bucking the trend, Maruti, PowerGrid and ICICI Bank ended in the red.
Market sentiment became upbeat after retail inflation dropped to an 18-month low of 2.19% in December, creating headroom for the Reserve Bank to ease monetary policy. Another set of official data showed that the wholesale inflation too eased to an eight-month low of 3.80% in December.
This is the final price print before the central bank’s Monetary Policy Committee meets next month to decide on rates.
Earlier, data showed factory output rose 0.5% in November, sharply slower than the 8.4% gain in the previous month.
“Lower inflation was expected given the sharp decline in crude oil and food prices,” said Sameer Kalra, president research at Target Investing in Mumbai. “However, crude remains volatile and may lead the Reserve Bank of India to pause and look at data for another quarter before reducing rates. Though it is likely to keep an easing stance with respect to liquidity” “Earnings for companies so far is showing revenue growth led by volumes even as margins are contracting. The trend is likely to persist for a couple of quarters before the companies regain pricing power and margins improve,” Kalra added.
On a net basis, foreign portfolio investors (FPIs) sold shares worth Rs 732.46 crore on Monday, while domestic institutional investors (DIIs) were net buyers to the tune of Rs 527.49 crore, provisional data available with BSE showed.
“Domestic market was buoyed by broad-based buying across all sectors and particularly led by rate sensitive sectors on the expectation of a probable rate cut considering that IIP for November slumped to mere 0.5% while CPI inflation eased for a 6th straight month to 2.19% in December,” Paras Bothra, president, equity research, Ashika Group, said.
Positive cues from European and Asian markets also lifted the sentiment.