Rate-sensitives lift market to new high

Tags: News
Realty, power and capital goods stocks rallied on Tuesday on the central bank’s dovish money policy stance, lifting benchmarks Sensex and Nifty at new record highs. Metal stocks got a boost from good factory output data in China.

Reserve Bank of India governor Raghuram Rajan toned down his inflation rhetoric in the second bimonthly money policy but kept interest rates unchanged at 8 per cent as widely expected.

However, he unlocked about Rs 40,000 crore in the system by reducing the proportion of deposits that banks are required to park in government securities.

Industry captains, who have been hankering for a rate cut, hailed the move, saying it will give more room to banks for onward lending to the corporate sector. Sensex closed at 24,858.59 with a gain of 173.74 points surpassing the May 26 record high closing of 24,716.88. Nifty for the first time closed above 7,400 at 7,415.85, a gain of 53.35 points.

Motilal Oswal, chairman and managing director of Motilal Oswal Financial Services, said the RBI policy stance was expected. “The measures to cut the SLR and reduce liquidity under the export credit refinance (ECR) scheme are long term in nature and unlikely to have any immediate relevance. Significantly, the commentary is dovish.”

RBI’s hint of a softer interest rate regime ahead and the reduction in statutory liquidity ratio triggered a bounce in the rate-sensitive stocks. The BSE realty index rose 3.15 per cent, led by gains in DLF (4.89 per cent), Unitech (4.20 per cent), HDIL (3.43 per cent) and Godrej Properties (3.22 per cent). “I am hopeful that we may see a rate cut soon provided the government’s administrative actions finally succeed in reducing food inflation,” said Oswal.

However, bank stocks saw profit booking after previous day’s rally. BSE bankex closed flat thanks to small losses in the shares of SBI (0.03 per cent) and Axis Bank (0.15 per cent), ICICI Bank (0.28 per cent). HDFC Bank gained 0.56 per cent.

“The fact that these measures have come in the backdrop of the recent firming up in inflation and that RBI has agreed to give more weightage to non-food-non-fuel inflation can be viewed as a favourable stance,” Oswal said. Both foreign institutional investors and domestic institutional investors hailed the money policy, and turned net buyers of stocks worth Rs 575.09 crore and Rs 99.81 crore.

Dipen Shah, head of private client group research at Kotak Securities, said the policy announcements largely met expectations. “The 50 bps reduction in SLR to 22.5 per cent will only add to the excess liquidity lying with the banks and may not lower interest rates. It is, however, a signal that RBI will provide liquidity if demand grows. The reduction in liquidity under the ECR scheme will be offset by a special term repo facility.”

“We expect rates to moderate by 50 bps in FY15. G-sec yield is likely to be about 8 per cent by the end of this financial year,” he said.

Metal stocks were in demand as analysts revised China’s industrial production growth for the year to 9.1 per cent from 9.0 per cent and GDP growth to 7.5 per cent from 7.4 per cent following the May factory data. BSE metal index emerged top sectoral gainer with 5.06 per cent rise. A pickup in demand in China augurs well for India’s metal and mining sector.

Tata Steel was the top gainer, rising 6.69 per cent.

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