Mumbai: The domestic equity markets staged a spectacular rally on Tuesday posting their biggest single day gains in more than 30 months amidst growing hopes regarding an interest rate cut by RBI after the government said it will meet its medium term fiscal consolidation roadmap.
The Chinese central bank’s decision to reduce reserve ratio by 50 basis points and expectation about further stimulus measures from Bank of Japan and European Central Bank also boosted sentiments, which triggered a rally in global stocks and emerging market currencies.
After opening the day on a positive note, the Sensex jumped 777.35 points or 3.38 per cent at the end the day at 23,779.35, while the Nifty soared 235.25 points or 3.37 per cent to end the day at 7,222.30. In percentage terms, this is the biggest single day gain for the markets since September 2013.
The Indian rupee posted its biggest single day gain in last six months to close at 67.87 per dollar. According to stock market dealers, investors expected an increase in public borrowing in the Union Budget.
However, they were pleasantly surprised after the finance minister said the Centre would adhere to its 3.5 per cent fiscal deficit target for FY17 despite ann-ouncing massive stimulus for agriculture and rural infrastructure.
“This move is likely to have a far-reaching impact on the macro economy by preserving stability. More important, the show of fiscal discipline makes it easier for the RBI to continue with its accommodative stance,” said HSBC Global Research in its post budget note.
According to the provisional data released by the stock exchanges, foreign portfolio investors bought shares worth Rs 2,912.59 crore. “The People’s Bank of China reduced the reserve ratio requirement by 50 basis points on Monday. This led to strengthening of yuan and other emerging market currencies including the rupee,” pointed out Sanjay Kumar, chief investment officer, PNB MetLife Insurance.
Cigarette manufacturer ITC and interest rate sensitive banking and auto sector stocks led the market rally on Tuesday. “We expect RBI to lower rates atleast by 25 basis points at the earliest,” said Ajay Bodke, chief executive officer and chief portfolio manager, PMS at Prabhudas Lilladher.
This would spur demand in many interest-rate sensitive sectors like BFSI, automobiles, consumer durables, capital goods and construction. “This will also act as a force multiplier to the consumption demand arising because of the VII th pay commission award & OROP,” he added.
