Markets move higher on early rate-cut hopes

BSE Sensex on Tuesday rose as much as 0.4% during the day but closed up 0.1% at 27,910

Markets continued to tread cautiously, but edged higher on the hope that inflation data due this week would help build a case for an early rate cut. Stocks of companies in the financial sector, which would benefit from such a cut, were among the gainers. The BSE Sensex on Tuesday rose as much as 0.4 per cent during the day, but closed up 0.1 per cent at 27,910. The NSE’s 50-stock Nifty ended the day up 0.2 per cent at 8,362. It touched a day’s high of 8,378, up 0.4 per cent. Banking shares were up 0.8 per cent led by gains in the private names such as Axis Bank, HDFC Bank and ICICI Bank.

Participants said markets expected the inflation data to be released later this week to be much lower raising hopes of an early interest rate hike. Axis Bank was up 1.4 per cent, while HDFC Bank and ICICI Bank were up over one per cent each.

While a December rate hike has been ruled out by most, analysts said there was still a section of the market that was betting on a rate cut during the December 2 Reserve Bank of India (RBI) policy review, which was fuelling anticipation in the market.

“There is some hope that there might be a cut in interest rates announced during the December RBI policy review largely because of a lower inflationary trend. Markets also believe that the policy this time may be more dovish than before, making investors a bit more confident,” said Piyush Garg, executive vice-president, ICICI Securities.

Stocks of non-banking financial sector companies also rose after RBI revised rules on capital requirements and bad loans. Shriram Transport Finance climbed 4.9 per cent, while IDFC was up 2.7 per cent. HDFC and Mahindra & Mahindra Financial Services were both up 1.1 per cent.

On Monday, shares had hit a record high in the earlier part of the trading but retreated from the fresh highs as investors rushed to book profits. Analysts said shares would continue to trade in a range with the corporate earnings season still underway.

Shares of the consumer durables and fast-moving consumer goods (FMCG) sectors were down 1.2 and 0.7 per cent, respectively. Technology stocks were down 0.4 per cent. Analysts said the defensive sectors such as FMCG would continue to remain under pressure because of the recent run-up. According to them, these stocks are ripe for further gains after the recent correction.

“Some of the FMCG stocks, particularly ITC, has been struggling for the past few days. Even the IT sector is seeing a correction but we expect to see recovery in the shares going forward because the outlook on the defensive sectors continues to positive,” said Vivek Mahajan, head of research, Aditya Birla Money.

Foreign portfolio investors (FPIs) on Tuesday purchased shares worth Rs 458 crore (net), while the domestic institutions have been net sellers at Rs 516 crore. So far this month, FPIs have net bought shares worth Rs 6,177 crore. Domestic investors, on the other hand, have been net sellers at Rs 3,389 crore.