Markets Gain Momentum On Rate Cut

The Indian markets gave up their morning losses and turned positive post the RBI's rate cut stance taken during its monetary meet today. In a move to improve liquidity in the system and to maintain the growth of the economy, the central bank has reduced the repo rate by 50 bps to 8% on an immediate basis.

The 50 bps rate cut has come above the market expectation of 25 bps, which has boosted sentiments. However immediately after surging by 200 points, the Sensex lost its gains. The RBI's move may have worried investors on the inflation side, which still remains worrisome for the market. On its part, the RBI has mentioned that inflation will move in a narrow range in the coming quarter. WPI inflation for March 2012 has declined by 0.06% from 6.95% to 6.89%. In its comments to the media, the central bank has also stated that headroom for a further rate cut will be limited in the coming quarter. The market gave up their gains immediately on these concerns. As per the experts, the markets have already rallied in the last one week on expectations of a rate cut, and therefore, the mood in the market remained muted after the rate cut.

Among the rate sensitive sectors, the Bankex and Auto indices gave up their morning losses and are trading higher by 0.28% and 0.18% respectively. On the other hand, PSU, Realty, FMCG and Metals are leading with gains of 1.30%, 1.07% and 0.99% respectively. The rate cut by the RBI will lead to higher liquidity in the system and will boost the investment cycle of the manufacturing sector in the country.

Other Asian markets continue to trade lower, with Hang Seng and Shanghai trading lower by 0.29% and 0.94% respectively, while Nikkei is trading flat, down by 0.06%. The markets are down on the back of growing concerns over rising borrowing costs in Spain, which is putting pressure on the other European economies.

The European markets opened on a positive note on the second day of trade, but the trade remains choppy. However, concerns over a huge debt burden are still looming over the European countries, and after a continuous selloff in the market, the investors doesn’t want to push the downtrend much further.

Back home, the rate-sensitive stocks such as HDFC, ICICI Bank and SBI are trading higher with gains of 0.57%, 0.50% and 1.08% respectively. Other scrips like Hero MotoCorp and Bajaj Auto too are up by 1.30% and 1.01% respectively. Coal India continues to lead the 30-share BSE Sensex, with gains of 2.96% taking it to Rs 349 on the back of news that the company will divert lesser coal from e-Auction to the power companies, which will help it to sustain its margins.

The market breadth, which indicates the overall health of the market, is positive. On the BSE, 1333 shares gained, 1281 shares declined and 136 shares remained unchanged.

We expect the markets to remain positive for the rest of the day on the back of the rate cut.