Markets cheer Chinese rate cut, easing MAT worries

Respond to Chinese rate cut and easing MAT worries

Indian shares climbed about one per cent on Monday, in line with a rally in Asian markets after China cut interest rates. Easing worries over taxation of foreign investors also helped the sentiment, reducing the selling pressure that had seen the Sensex decline a little over 3,000 points from its peak. The gains were led by stocks of metals, automobile and mining companies, and state-owned lenders.

On Monday, the 30-share benchmark BSE Sensex rose 400 points or 1.5 per cent, to touch 27,507. The broader Nifty index of the National Stock Exchange climbed 133 points or 1.6 per cent, to end at 8,325. Equities remained volatile through last week, ending down 1.4 per cent, with the Sensex slipping below the 27,000 mark.

Stocks of the metal, automobile and banking sectors were up by about 2.5 per cent each. “Metal stocks rose because Chinese data has shown improvement and the rate cut indicates Chinese demand might be picking up. Public sector banking stocks were up mainly because of the Bank of Baroda quarterly earnings numbers,” said Dipen Shah, head of private client research, Kotak Securities.

He said hopes of a rate cut by the Reserve Bank of India (RBI) weighed heavily on the minds of investors and traders. “That decision will depend on whether the CPI (consumer price index) inflation) is below five per cent,” he added.

Among the Sensex stocks, lenders State Bank of India and HDFC were among the top five performers, gaining a little over five and three per cent, respectively. Tata Motors and Hero MotoCorp were the other top ones, over three per cent each. Automobile stocks rose on the April sales figures, issued by the Society of Indian Automobile Manufacturers. These showed a marginal rise of 2.5 per cent over the corresponding period last year.

Domestic institutional investors and foreign investors were both net buyers. Buying by the former was nearly double the amount bought by foreign portfolio investors, a net Rs 328 crore to Rs 169 crore.

“This could be an indication that the selling pressure in the market has eased. This is a rebound after the heavy selling we saw last week and could continue for some more time because everybody is speculating that RBI could cut rates,” said Rikesh Parikh, vice-president (equities), Motilal Oswal Securities.

The government last week announced a committee to look into taxation of foreign investors, after concerns over levy of Minimum Alternate Tax for past years. This eased sentiment, affected by a move which effectively raised their tax rate from zero to around 20 per cent.

Bank of America Merrill Lynch's strategy report for India, issued on Monday, noted foreign investors had been net buyers for nine quarters in a row but there was now concern over the pace of reforms. There could be further disappointment if larger reforms such as those on land acquisition and a national goods and services tax are not passed, it said. This and other factors could limit foreign participation.

“Strong inflows from foreign institutional investors (FIIs) have resulted in all-time high foreign ownership for Indian markets. GEM funds have a 12.8 per cent weight in India vs the index weight of 7.7 per cent. Though part of the overweight is on account of low foreign room in a few companies, such a high overweight would cap the future participation of FIIs, under the backdrop of slow earnings growth," said the report, authored by Jyotivardhan Jaipuria and Anand Kumar.