Positive macro data buoys markets; Sensex gains 140 points

Positive macro-economic data points increased hopes of a rate cut and buoyed a barometer index of the Indian equity markets by over 140 points during the late-afternoon trade session on Thursday.

After three days of continued losses, the barometer 30-scrip sensitive index (Sensex) of the S&P Bombay Stock Exchange (BSE) rose 142 points on the hopes of a proposed special session of parliament to pass crucial economic legislations.

The wider 50-scrip Nifty of the National Stock Exchange (NSE) also surged during the late-afternoon session. It gained 42.90 points or 0.51 percent and was trading at 8,392.35 points.

The S&P BSE Sensex, which opened at 27,635.25 points, was trading at 27,654.44 points (at 2.30 p.m.) -- up 142.18 points or 0.52 percent from the previous day's close at 27,512.26 points.

The Sensex touched a high of 27,791.10 points and a low of 27,535.97 points in the intra-day trade so far.

Analysts observed that the Indian markets opened in the positive territory tracking SGX Nifty, a day after positive set of macro-economic data points cheered investor sentiments.

It was a twin-cheer for India Inc. as India's annual retail inflation rate fell significantly to 3.78 percent in July and the factory output, that has been stuttering for some months, rose slightly to 3.8 percent in June.

"Both the Consumer Price Inflation (CPI) index and Index of Industrial Production (IIP) increased the hopes of a rate cut," Anand James, co-head, technical research desk, Geojit BNP Paribas told IANS.

"The healthy IIP numbers showed an active industrial output performance and a slowdown in food inflation pointed at the general trend that inflation is being reined in. Both the data points indicated at hopes of a rate cut in the near future."

Thursday's intra-day rally eased off the bearish outlook of the markets. The markets lost a total of 724 points during the first three trading days of the week.

The negative sentiment had emanated out of devaluation of the Chinese yuan, a plunge in global commodity prices coupled with a depreciating rupee and stalled reforms process due to the logjam in parliament.

Notwithstanding the positive triggers brought in by the CPI and IIP data points, the devaluation of the yuan just before the US Fed's monetary policy decision impacted the Indian rupee which fell to a 24-month-low at Rs.65.05 to a dollar.

The revaluation of the yuan, intended to boost Chinese exports, has made investment in China cheaper. This is leading foreign investments away from India.

China's central bank has devalued yuan by two percent. This is the biggest devaluation in the Chinese currency since 1994.

The move has strengthened the dollar value, which has negatively impacted major world currencies including the Indian rupee.

The depreciation in the rupee value has helped the IT and other exports related stocks to rise.

The other factor supporting the rally-buying in the Indian equity markets is the possibility that the government might extend the "Monsoon Session" or call for a "Special Session" of parliament to pass the GST (goods and services tax) bill.

"The signals that are coming -- like an extension of the monsoon session or a proposed special session to get the GST bill passed -- are very encouraging," Devendra Nevgi, chief executive of ZyFin Advisors told IANS.

According to Nevgi, investors have been reluctant to chase higher prices given the possibility that the reform process might be stalled due to the government's inability to conduct business in parliament.

"The India growth story is based on the ability of the government to bring in reforms for the central bank to cut rates and usher in the demand by propping-up the consumer sentiment. The lack of reforms will send in a dampening signal to the rest of the world," Nevgi elaborated.

Sector-wise, healthy buying was observed in banks, healthcare and automobile stocks, while metal, capital goods and realty scrip came under selling pressure.

The S&P BSE healthcare index increased by 171.81 points, followed by banking index which gained by 144.40 points and automobile index which rose 125.85 points

However, the S&P BSE metal index tanked by 212.55 points, capital goods index declined by 84.75 points and the realty index slipped marginally by 9.23 points.