Markets gain for a second day as RBI maintains status quo on policy rates

The benchmark indices rose about half a per cent for a second day in a row, wiping out losses from the preceding two trading sessions to eke out marginal gains for the week.
 

The latest gains come amid a status quo on interest rates by the Reserve Bank of India (RBI) while maintaining a hawkish stance due to an uncertain inflation outlook.

Technology and financial stocks led the gains, with Bajaj Finserv and Bajaj Finance surging over 4 per cent each, buoyed by a large fundraise exercise.

Technology stocks rose due to the buzz that large software exporters may announce share buybacks. After market hours, Tata Consultancy Services said its board will consider a buyback next week.

The benchmark S&P BSE Sensex rose 364 points, or 0.55 per cent, to end at 65,996, while the National Stock Exchange Nifty50 closed at 19,653, up 108 points, or 0.55 per cent.

Foreign portfolio investors sold shares worth Rs 90 crore, while their domestic counterparts were net buyers to the tune of Rs 783 crore, according to provisional data provided by stock exchanges.

The Nifty Bank Index rose 0.33 per cent even as the yield on the 10-year benchmark government security rose following a hawkish stance by the RBI.

“The RBI’s hawkish stance, particularly in its management of liquidity to counter inflationary risks, has further impacted the market, leading to an increase in India’s 10-year bond yield. However, the market found some support from strong domestic Purchasing Managers’ Index (PMI) data and corrections in crude oil prices, which have helped it overcome the weak trend observed in the previous three weeks,” said Vinod Nair, head of research at Geojit Financial Services.

Data released on Thursday showed the domestic services sector strengthened as S&P Global’s Services PMI stood at 61 in September, up from 60.1 in August.

 

Market players said the domestic markets could once again come under selling pressure next week as strong US jobs data led to a spike in 10-year US Treasury yields, sparking concerns that the Federal Reserve (Fed) will raise interest rates this year.

After closing at 4.72 per cent on Thursday, the US 10-year Treasury yield touched almost 4.9 per cent, while the 30-year bond rose above 5 per cent — both at the highest levels since 2007 — following the US jobs data.
 

The nonfarm payrolls report showed employers quickened the pace of hiring, with 336,000 jobs being added in September — well ahead of economists’ estimates. The unemployment rate held steady at 3.8 per cent, data from the Bureau of Labor Statistics showed on Friday.
 

“Not only does Friday’s report indicate the economy is almost too hot to handle and the Fed will need to respond with more rate hikes, but it also reinforces the higher-for-longer narrative that has been spooking bond markets for the past few weeks,” said Seema Shah, chief global strategist at Principal Asset Management. “Markets want the perfect landing, but instead they are facing an upward-sloping path.”

Experts said the strong labour markets were creating doubts over the Fed’s ability to cool the economy without stoking a recession.

“Investors were looking for a jobs report that is weak enough to keep the Fed from raising rates while also not being so weak as to stoke fears of a hard landing,” said Bryce Doty, senior portfolio manager at Sit Investment Associates. “This report is clearly going to put a rate increase firmly back on the table.”

The GIFT Nifty Index slipped 40 points, or 0.2 per cent, to 19,628, following the release of the US jobs data.

With inputs from Bloomberg