Gold Silver Reports — Markets Surge Markets Surge on Hopes of RBI Rate Cut — Benchmark indices surged almost 1.5% on Monday as expectations of a rate cut strengthened ahead of the policy meet of the Reserve Bank of India (RBI) on Tuesday . Easing concerns over the stability of Deutsche Bank, which sparked a rally in other Asian markets, and reduced geopolitical tension also lifted sentiment. Traders’ perception of near-term risks in the market dropped with the volatility index (VIX) declining 8% on Monday.
The outcome of RBI’s meeting will set the tone for the market over the next couple of days. Hopes of a 25 basis point cut in the repo rate by RBI are high, said fund managers “The equity market has priced in a repo rate cut, going by market yields,“ said Nilesh Shah, MD, Kotak AMC. “If there is no rate cut in the credit policy , the equity market is likely to react adversely .“
The Sensex rose 1.35%, or 377.33 points, to end at 28,243.29, while the broader Nifty gained 1.47%, or 126.95, points to reclaim 8,700 levels.The rally in midand small-cap shares was stronger. The mid-cap index rose 2.4% and the small-cap index gained 2.6%. All Nifty sector indices ended in the green on Monday, with the Nifty Media index being the best performer, gaining over 5%.
Traders have built positions factoring in a rate cut, which is why analysts feel if RBI defies expectation, it could be a blow to the market.
“Owing to the events over the last few days, the RBI might not cut rates,“ said Anoop Bhaskar, head of equity at IDFC Mutual Fund. “But, a rate cut cannot be ruled out as this is the new RBI governor’s (Urjit Patel’s) first poli cy. The governor might want to make an emphat ic statement and set the tone for the rest of his term.“
The Sensex has risen 1.49%, while the has gained 1.71% 50-stock Nifty has gained 1.71% since Thursday. The 30-stock Sensex has declined 0.18 in a week and 0.63% in a month; the Nifty has gone up 0.17% in the last week but has declined 0.42% in a month. Foreign portfolio investors (FPIs) picked up shares worth `34 crore on Monday . They have bought Indian equities worth `5,041 crore in a week and `9,506 crore in a month.
Elsewhere in Asia, most markets, barring the Kospi, ended higher. The Shanghai Composite rose 0.27%, the Hang Seng gained 1.23%, and the Taiwanese Topix increased 0.60%; the Korean Kospi declined 1.21%.The upmove was largely on account of ebbing worries about Deutsche Bank’s finances on news the lender is negotiating a much smaller fine with the US Department of Justice. At home, reports of India’s and Pakistan’s national security advisors agreeing to talk to alleviate bilateral tensions bode well for the market. On Thursday , indices had fallen 1.6% and midand small-cap indices had lost close to 4% after India’s surgical strike on terrorist launchpads in Pakistan-occupied Kashmir. However, markets recovered on Friday , paring their losses.
Fund managers said the focus will shift to second-quarter results soon.“The upcoming quarterly results and how they pan out will be very crucial indicators,“ said Sampath Reddy , chief investment officer at Bajaj Allianz Life Insurance. “If there is no rate cut on Tuesday , there could be a temporary setback but investors should pay close attention to the RBI’s commentary .“ — Neal Bhai Reports