Sensex rises 421 pts on rate cut hopes

Signs of an improvement in global risk appetite also boosted the expectation for capital inflows.

Indian shares climbed the most in two weeks on Tuesday, tracking firm global markets, on expectations that the Reserve Bank of India (RBI) would soon start cutting rates to revive growth and signs of increased manufacturing output across the world.

The Bombay Stock Exchange (BSE) benchmark Sensex surged 421.44 points, or 2.7 per cent, to close at 15,939.36. All but two stocks in the 30-stock index ended with gains. The 50-stock Nifty of the National Stock Exchange (NSE), gained 2.77 per cent, or 128.55 points, to 4,765.30.

“There is an expectation that RBI may start cutting rates from its policy review later this month,” said Alex Mathews, head of technical and derivatives research, Geojit BNP Paribas Financial Services. “Rally in Asian and European markets on good manufacturing data also helped,” he added.

The Reserve Bank of India may reverse its monetary tightening and shift its focus to boosting growth, Governor D Subbarao had told BBC yesterday.

After raising its key policy rates 13 times since March 2010 to tame inflation, RBI kept rates unchanged in its monetary policy this month and signalled a reversal in its stance.

Foreign institutional investors bought shares worth Rs 255.39 crore, while domestic institutional investors were buyers to the tune of Rs 206.51 crore, provisional data on the BSE website showed.

Among the major gainers in the Sensex, DLF was up 6.84 per cent to Rs 191.40, Tata Steel rose 6.06 per cent to Rs 361.20 and Jindal Steel added 5.67 per cent to Rs 485.25.

Market breadth was positive, with nearly three stocks advancing for every declining stock on BSE.

All the sectoral indices on BSE ended in the green. The metal index rose 5.05 per cent, the capital goods index advanced 4.40 per cent and the Bankex rose 4.35 per cent.

“Cooling off of bond yields and a rebound in manufacturing data came as positives,” said Sanjeev Zarbade, vice-president (private client group research), Kotak Securities. “Looking ahead, markets would start reacting to earnings announcements. The December inflation data would be closely watched for signs of softening in manufacturing products inflation.”

Manufacturing in India as well as China rose in December, boosting investor confidence. The Purchasing Managers’ Index (PMI) in India rose to 54.2 from 51 in November, HSBC Holdings and Markit Economics said yesterday. In China, the index was at 50.3, compared to 49 in November, the Beijing-based logistics federation said in a statement on January 1.

Earlier, Asian markets rallied on Tuesday as manufacturing growth in Australia, China and India added to optimism that the region’s economies might withstand Europe’s sovereign-debt crisis.