Ahead of RBI monetary policy committee outcome, Sensex and Nifty gain 1 per cent
NEW DELHI: India’s equity rallied sharply during the second half of Thursday’s trading session amidst renewed hope of a dovish monetary policy by the Reserve Bank of India (RBI). Further, a halt in selling by foreign institutional investors (FIIs) lifted sentiments.
Benchmark indices – BSE Sensex and NSE Nifty50, recovered from early losses and settled in green for the fifth consecutive session. The Sensex closed 809.53 points or 1% higher at 81,765.86 while the Nifty50 settled at 24,708.40, up 240.95 points or 0.98%.
Prashant Tapse, Analyst at Mehta Equities, also stated that market movements are being driven by expectations around the RBI's monetary policy decision and potential liquidity measures in response to weaker-than-expected economic growth.
“While some expect a cash reserve ratio (CRR) cut to signal policy loosening, the RBI has remained cautious due to inflation concerns above its 4 percent target. A rate cut is unlikely at this meeting as the central bank may await further macroeconomic data before easing policy," Tapse said
Siddarth Bhamre, Head of Research at Asit C Mehta Investment Intermediates, believes that there won't be a rate cut on Friday and the RBI would like to wait and watch external factors such as US Present elect Donal Trump’s trade policies. He added that RBI’s main mandate is to cut inflation which is still not below the 4% mark.
Bhamre stated that Thursday’s rally was not fuelled by the chances of a rate cut as interest rate-sensitive stocks did not see any major buying. He said that there won't be any impact on the equity market if RBI keeps the key interest rates unchanged.
“The market had bottomed out last month owing to different factors. However, Maharashtra election results gave investors a reason to buy. Simultaneously, IT and banking stocks started doing well. For the market to change completely, we need to cover more ground. More importantly, earning growth has to improve,” said Bhamre.
The Thursday rally was led by IT stocks with TCS, Infosys, and LTIMindtree surging 2% and more. The Nifty IT index scaled a fresh 52-week high of 45,027.95 during the intra-day deals. Nifty Oil & Gas, Auto, and Private Banks also advanced about 1% each on Thursday.
In the broader market, the Nifty Midcap100 and Nifty Smallcap100 indices ended higher by 0.57% and 0.83%, respectively. Ajit Mishra – SVP of Research, Religare Broking said that the recent market surge has already factored in potential support from the RBI, making the market's reaction to Friday's outcome crucial.
Meanwhile, in a big positive for the Indian market, the FIIs have returned as net buyers. They infused more than Rs 13,000 crore (as net buyers) on December 2 and 3, and Rs 1,797 crore on December 4. On Thursday, they purchased (net) Rs 8,539 crore of shares. Continuous selling by FIIs for more than 2 months played a big role in pulling back the market from late September highs.
The RBI’s Monetary Policy Committee is all set to announce its decision on the key interest rate on December 6 (Friday). Most experts believe that the apex bank will keep the repo rate unchanged at 6.50% even as there is a growing call for a rate cut to lift India’s slowing economic growth.
For instance, global brokerage and financial firm Nomura believes that the RBI will go for a rate cut on Friday. Aurodeep Nandi, India Economist at Nomura expects RBI to announce a 25 basis points repo rate cut and 50 basis points Cash Reserve Ratio (CRR) to address the economic slowdown and infuse liquidity.
“When your forward looking (inflation) forecast is pretty well anchored at 4-4.5%, and the GDP print that we got of 5.4% is pretty shocking when India's trend growth is 6-7%. That is not normal. This means that not only does the RBI need to downgrade its GDP forecast for FY25 which is at 7.2% currently, but also reassess its confidence on the growth cycle. This is the time to do the rate cut, because monetary policy has to be forward-looking," he said.
