Hopes of interest rate cut buoy markets

Hopes of an interest rate cut, coupled with a strengthening rupee and positive global cues, buoyed the Indian equity markets during the late-afternoon trade session on Friday.

This led to a barometer index of the Indian equity markets to gain 329 points.

Initially, both the Indian bellwether indices opened on a positive note, in sync with their Asian peers, firm crude oil prices and Bank of Japan's (BoJ) decision to maintain its stimulus program.

Markets started their upward climb after initial consolidation from Thursday's close -- when both bellwether indices closed flat.

In addition, short-covering and value buying at lower levels pushed up prices.

Investors were seen hopeful of an interest rate cut during the upcoming monetary policy review by the Reserve Bank of India (RBI) which is slated for February 2.

Expectations were backed up by Bank of Japan's decision to go in for a negative interest rate to support the Japanese economy.

BoJ's decision came a day after the US Fed maintained its status quo on key lending rates.

Recently, the European Central Bank (ECB) indicated more stimulus measures which will be announced in March.

Besides, strengthening of rupee's value soothed investors' nerves. The rupee opened at 68.12 against a US dollar from Thursday's close at 68.23 to a greenback.

"Rupee had opened slightly stronger around 68.12 and then went on to strengthen more, on the back of easing from BoJ," said Anindya Banerjee, associate vice president for currency derivatives with Kotak Securities, told IANS.

"BOJ lowered rates to negative zone and that triggered the reflexive risk on trade in the world financial markets."

Further, the India volatility index (VIX) dropped to the lower end of it's range.

The barometer 30-scrip sensitive index (Sensex) of the Bombay Stock Exchange (BSE) was trading higher by 329 points, or 1.34 percent.

Similarly, the wider 50-scrip Nifty of the National Stock Exchange (NSE) made gains during the intra-day trade. It rose by 117 points, or 1.57 percent, at 7,541.25 points.

The S&P BSE Sensex, which opened at 24,347.31 points, was trading at 24,798.09 points (2.45 p.m.) - up 328.52 points or 1.34 percent from the previous day's close at 24,469.57 points.

The Sensex has so far touched a high of 24,828.13 points and a low of 24,340.06 points during the intra-day trade.

The S&P BSE market breadth favoured the bulls -- with 1,541 advances and 966 declines.

"Short-covering and value buying on account of hopes of an interest rate cut by RBI and strengthening rupee supported markets' gains," Anand James, co-head, technical research desk with Geojit BNP Paribas Financial Services, told IANS.

"The continuation of stimulus by BoJ, following US Fed's status quo on interest rates has heightened expectations of an interest rate cut by the RBI."

Nitasha Shankar, vice president for research with YES Securities, said that Indian markets witnessed a sudden spurt in buying following a subdued first hour of trade.

"Further, headline index Nifty has broken out from the upper end of the trading band, suggesting short term bullishness. Broader markets have also extended their gains in line with the headline indices," Shankar noted.

"Banking stocks continue to underperform led by profit booking in the PSU banks. All major sectorial indices, barring the bank index are trading in the green with handsome gains."

Vaibhav Agarwal, vice president and research head at Angel Broking, expected markets to witness profit booking at higher levels as FIIs (Foreign Institutional Investors) continue to remain net sellers.

"With earnings showing no signs of any immediate rise, there are no immediate positive triggers for markets," pointed out Agarwal.

"With no rate cut expected in the RBI policy next week, markets will shift its focus towards expectations from the budget."