Markets recover before RBI policy; yuan, hopes of rate cut buoy sentiment

Equity markets ended with gains on Tuesday ahead of the Reserve Bank of India’s (RBI) monetary policy, in which the central bank is widely-expected to cut interest rates further to boost growth and spending.

The rate-sensitive automobile and banking stocks led with the gains. A day earlier, the benchmark indices had ended at fresh five-month lows amid rising tensions between the US and China as well as the government’s bold move to abrogate the special status given to Jammu & Kashmir.

Stability returned to the global financial markets after China took steps to limit weakness in the yuan.  

After rising as much as 542 points in intra-day trade, the benchmark Sensex ended with gains of 277 points, or 0.75 per cent, at 36,977. The Nifty rose 86 points, or 0.79 per cent, to end the session at 10,948.

On Tuesday, the People’s Bank of China set the daily yuan rate higher than what most analysts were expecting. The move follows the US’ labelling of the country as a currency-manipulator after the yuan fell beyond 7 a dollar for the first time since 2008.

The devaluation was seen by many as a move to counter US President Donald Trump’s decision to impose tariffs on another $300-billion worth of Chinese goods. Global markets had seen huge sell-offs on Monday as investors moved away from risky assets into safe-havens such as gold and bonds.

“The Indian markets were anyway oversold, and a bounce was due,’’ said Deepak Jasani, head (retail research), HDFC Securities Analysts. “Strengthening of the yuan from its lows shows that China is not going to allow its currency to depreciate beyond a point.”

“Given the comforting inflation data and declining growth, expectations are rife for a fourth consecutive rate cut of 25 basis points by the RBI. However, commentary on growth and inflation would be more important in deciding the course of the markets,” said Ajit Mishra, vice-president (research), Religare Broking.

On Monday, the year-to-date returns of the Nifty had slipped into negative territory. The index of blue-chip firms had dropped over 10 per cent from its all-time highs in June. The stocks of most companies have hit a downward slope since the Budget.

The increase in surcharge for foreign portfolio investors (FPIs), introduction of buyback tax, and lack of a stimulus package had rattled foreign investors.

Fifteen of the 19 sectoral indices of the BSE ended with gains on Tuesday. Barring six, all Sensex stocks gained, with YES Bank rallying the most at 5.3 per cent, followed by Tech Mahindra, Bajaj Finance and Bharti Airtel, which rose more than 3 per cent each. Reliance Industries extended losses, while tech majors TCS and Infosys saw some profit-booking after posting sharp gains in the previous session.

FPIs sold shares worth Rs 2,108 crore, taking their one-month selling past Rs 20,000 crore. Domestic institutions bought shares worth Rs 2,289 crore, helping offset selling by overseas investors.