Markets Close On Firm Note

After opening on a negative note, the Indian markets recovered their losses in the afternoon trade on the back of the RBI's announcement of a repo rate cut of 50 bps to 8%. The move was towards increasing the liquidity situation to maintain a higher economic growth rate. In fact, the 50 bps rate cut has come above the market expectation of 25 bps, which has boosted sentiments. After surging 200 points though, the Sensex lost its gains on back of concerns over high inflation and limited room for a further rate cut. However, the markets regained momentum with positive cues coming in from the European markets.

Among the interest rate-sensitive sectors, the Realty, Metal and Auto indices closed with leading gains of 2.30%, 2.02% and 0.82% respectively. On the other hand, PSU, Capital Goods, Power and FMCG are up with gains of 1.85%, 1.74%, 1.61% and 1.60% respectively. The rate cut is expected to lead to higher liquidity in the system and to boost the investment cycle of the industrial sector in the country. A rate cut by the RBI will help banks to pass on the same to consumers, which will lead to lower interest rate for housing, auto, etc.

The peer Asian markets closed lower, with the 3 major indices, viz. Hang Seng, Nikkei and Shanghai, closing lower in the range of 0.06%-0.94%. The markets traded lower over concerns of the weakening European region, especially Spain, which is finding itself in huge debt problems. Lower FDI in China also dampened the investors’ sentiments.

The European markets are trading higher in the positive zone, with FTSE, CAC and DAX trading in the range of 0.50%-0.72%. On the second day of trade today, the markets opened on a positive note, though trade remains choppy. Buying at cheap valuations after a steep fall in the last one week helped the markets to trade in the green zone. However, the concerns looming over the European countries over their huge debt burden kept the overall mood cautious and the volumes low.

The market breadth, which indicates the overall health of the market, was positive. Out of the 3276 stocks traded on the BSE, 1918 advanced, 1235 declined and 123 remained unchanged.