A rebound in global indices, combined with a strengthening rupee, cheered investor sentiment, say analysts

Indian equities surged on Friday in tandem with positive global market trends, as improving domestic macro indicators boosted sentiment, underpinned by gains in banking stocks. The Sensex ended at 36,076.72, up 269.44 points or 0.75% while the 50-share index Nifty was at 10,859.90, up 80.10 points or 0.74%.

Analysts said a rebound in global indices combined with a strengthening rupee cheered investors.

According to Vinod Nair, head of research, Geojit Financial Services Ltd, the markets extended rally by taking positive cues from global markets. “Investors remain focused on global growth momentum while easing tensions between the US government and Federal Reserve provided an opportunity to accumulate stocks after recent consolidation. Going forward, the market will closely watch the Q3 earnings expectation, while global cues will dictate the direction,” he said.

Analysts, however, added that the recent rebound shouldn’t be read as a sign of resilience as it tends to fizzle out easily with a decline in global markets.

Pankaj Pandey, research head at ICICI Securities said there is a positive sentiment among investors, led by improvements in macro factors like the rupee and crude prices which had earlier crimped profit margins of corporates and dented economic growth.

The markets are also expecting a cut in interest rates by the Reserve Bank of India in its next monetary policy review in February 2019. “The sharp fall in crude oil prices, the healthy recovery in rupee/dollar and the controlled inflationary outlook may drive the RBI to closely review its monetary policy stance, which so far has been of ‘calibrated tightening’. The street is already pinning hopes on the RBI adopting a more dovish stance, and a rate cut in the monetary policy scheduled on 7 February also cannot be ruled out. This would help keep a check on any pull-back in bond yields, especially after the 10-year G-sec yield declined 94 basis points (bps) from its peak levels,” said Motilal Oswal Securities Ltd in a report 27 December. However, data released by the government on Thursday suggested the economy is at risk of missing its budget deficit target for the current fiscal year while economists said the government had already started to cut capital spending in an attempt to narrow the gap. The data showed the fiscal deficit in the April-November period stood at ₹7.17 trillion ($101.93 billion), or 114.8% of the budgeted target for the fiscal year that ends in March. It is the second consecutive month that the deficit has come in above 100% of the budgeted target.

Meanwhile, banking stocks rose 1.05% on reports that the government is likely to infuse ₹28,615 crore into seven public sector banks (PSBs) through recapitalization bonds by the end of this month. The disbursement is expected to take place before 31 December. Out of the seven state-owned banks, Bank of India is likely to get the highest amount of ₹10,086 crore, followed by Oriental Bank of Commerce, which might get ₹5,500 crore through recapitalization bonds.

source: livemint.com