Hopes of an interest rate cut buoys equity markets (Weekly Review)

Mumbai, Jan 30 (IANS) Hopes of an interest rate cut, combined with dovish monetary policies in the US and Japan, buoyed the Indian equity markets during the just-concluded weekly trade.

Even the rebound in global crude oil prices, additional liquidity injected by the Chinese central bank and the healthy buying by domestic investors supported the gains made by the equity markets.

However, the rupee’s continuous slide prompted by foreign investors’ selling frenzy capped gains.

The barometer 30-scrip sensitive index (S&P Sensex) of the Bombay Stock Exchange (BSE) closed higher by 435.03 points or 1.78 percent to 24,870.69 points.

Similarly, the wider 50-scrip Nifty of the National Stock Exchange (NSE) gained by 141.1 points or 1.90 percent to 7,563.55 points.

Markets made substantial gains on Friday, as investors were seen hopeful for an interest rate cut during the upcoming monetary policy review by the Reserve Bank of India (RBI), which is slated for February 2.

Expectations were backed up by the Bank of Japan’s (BoJ) decision to go in for a negative interest rate to support the Japanese economy.

The Japanese central bank cut it’s key lending rates by 20 basis points to negative 0.1 percent. The decision came after the US Fed maintained its status quo on key lending rates.

Recently, the European Central Bank (ECB) indicated more stimulus measures which will be announced in March.

“Markets rose on the back of short-covering and value buying. The rise was also on account of hopes for an interest rate cut by the RBI and strength seen in the rupee’s value on Friday,” Anand James, co-head, technical research desk with Geojit BNP Paribas Financial Services, told IANS.

“The continuation of stimulus by BoJ, following US Fed’s status quo on interest rates has heightened expectations of an interest rate cut by the RBI.”

Vaibhav Agarwal, vice president and research head at Angel Broking, said: “Markets ended the week on a strong note after the surprise move by the BoJ to push interest rates into negative territory and the F&O expiry out of the way.”

“Most global markets and commodities ended Friday with strong gains led by the move, resulting in a positive closing for the week. The US Fed chair also kept interest rates unchanged at the FOMC meet in line with expectations.”

In addition, stiffening of crude oil prices, which edged-up over $30-level from lows of $26-mark accelerated buying activity.

“The oil price jumped significantly last week and held higher as the first concrete signs that volatility may come down,” noted Dhruv Desai, director and chief operating officer at Tradebulls.

Notwithstanding equity gains, a weak rupee dented investors’ risk taking appetite.

On a weekly basis, the rupee weakened by 16 paise at 67.78-79 (January 29) to a US dollar from its previous close of 67.63 to a greenback (January 22).

However, it touched a new 29-month low of 68.23 to a US dollar — its weakest level since late August, 2013 during the intra-day trade on January 28.

The weakness in the rupee value indicated the massive outflow of foreign funds from the Indian equity and debt markets.

The National Securities Depository Limited (NSDL) figures showed that FPIs (Foreign Portfolio Investors) were net sellers during the week ended January 29, 2016. They divested Rs.1,203.64 crore or $177.55 million in the equity and debt markets from January 25-29.

Similarly, data with stock exchanges disclosed that the FPIs sold stocks worth Rs.848.2 crore in the week under review.

The FPIs have been net sellers in every trading session with exception of January 1, 2016. In total FIIs have sold equities worth Rs.13,966 crore during January.

Nevertheless, the data further showed that DIIs bought stocks worth Rs.1,807.86 crore.

DIIs have bought equity worth Rs.22,240 crore for January.

Markets made gains despite below-expected quarterly numbers from majors like ICICI and Bharti Airtel.

“Unfortunately, all the optimism on global factors can not hide the fact that earnings reported by some of the key and large Indian corporates have not been good despite low expectations from 3Q (Third Quarter),” pointed-out Pankaj Sharma, head of equities for Equirus Securities.

“These include ICICI Bank and Bharti Airtel. Also, some of the latest trends on capacity utilisation, new orders and inventory pile up as reflected in RBI’s survey are also disappointing.”

(Rohit Vaid can be contacted at rohit.v@ians.in)

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