Markets Gain On 1.6% On Renewed Rate Cut Hopes

The markets today posted gains of 1.6% on the anticipation that RBI will go ahead with the repo rate cut. Besides there is common consensus among the investors that the central banks of the various countries will enhance the liquidity in their respective countries if Greece is not able to form a government after this weekend election.

Meanwhile credit rating agency, Moody’s has said that RBI should cut the rates as country is slowing down faster. The senior economist at Moody’s has also said that the country is probably in stagflation as there is higher inflation and slower growth. He is expecting a 50 bps cut immediately and another 50 bps cut in the next meeting. The recent comments by HSBC also direct towards more pessimistic growth of the country as the bank has lowered the GDP forecast to 6.2% for FY13. The government has been saying the country will achieve 7% growth even in FY13 however the recent IIP numbers does not hold what the government is saying.

These two statements by Moody’s and HSBC have further fueled the discussion of the repo rate cut. It will be interesting to see what RBI will do on Monday.

In the global markets, Asian as well as European markets were positive. Hang Seng surged 2.21%. Market in Shanghai was also up nearly half per cent. Nikkei however was flat as the central bank there has kept the interest rates unchanged. Among the European peers, CAC has rallied 1.5% while FTSE and DAX are trading significantly up.

Major indices were trading in positive from the opening. As the day progressed indices inched higher and higher. Rate sensitive indices such as Banking, Auto and realty were the top gainer indices. Capital goods was also up after all the negativity created due to the recent news in the power sector.

In the Sensex stocks, total 27 stocks surged. Top gainer was Tata Motors which gained 5.75% after better sales numbers by JLR. ICICI bank surged by 3.11%. Most stocks were up between 1-3% citing bullishness of the investors and traders. Shares of Sterlite, Bajaj Auto and ONGC were in negatives.

The cement company Ultratech Cement has witnessed a sharp jump in its advance tax numbers. It paid 175% higher advance tax of Rs 110 crore. HDFC also paid advance tax 18 percent higher to Rs 300 crore. TCS, Cipla, Indusland Bank, Bank of India and Bank of Baroda have also seen their advance tax numbers rising.

Among the other shares Corporation Bank was down 4.8%. Fertilizer stocks were also down as CCEA has delayed the decision on Urea pricing. Shares of Grasim industries were up 6%. Shares of Vijay Mallya headed company United Spirits were up 4.66% as foreign fund house Credit Suisse has bought 9.2 lacs shares in the company.

A total 17 shares have closed double digit growth in the all market indicating the bullishness of the investors. The market breadth remained very positive with total 56% shares advancing and 39% declining. Total 5% shares remained unchanged.

The investors have turned very optimistic on the rate cut and any absence of the same from the RBI’s monetary policy review will take tall on the markets. Besides we believe that the market has discounted 25 bps of repo rate cut, hence on Monday investors should not be surprised if the markets remain flat after low quantum of rate cut activity. Anything beyond 25 bps points will trigger a rally like today. Investors can take their positions according.