Sensex rallies past 21,000 on rate cut hope, US signal

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Sensex rallies past 21,000 on rate cut hope, US signal
The stock market rose to its highest close this year on Monday on expectations that an expected drop in inflation may force the Reserve Bank of India (RBI) to hold rates in its January 28 policy review. Data released after market hours showed December retail inflation moderated to single digit at 9.87 per cent from 11.24 per cent in November.

A slowdown in US job growth also boosted sentiment, as it may force the US Federal Reserve to go slow in tapering the quantitative easing (QE) programme.

The benchmark Sensex rallied 375.72 points (1.81 per cent) to close at 21,134.21 while the broadbased 50-share Nifty closed at 6,272.75, up 101.30 points or 1.64 per cent.

“The market rose sharply likely buoyed by weak payroll data in US, which reignited optimism on the Fed taper programme. Expectations on lower CPI inflation data, due after market hours, also kept the market up,” said Dipen Shah, head of private client group research at Kotak Securities:

Shah said a moderation in CPI inflation might have a bearing on RBI’s monetary policy decision. The industrial output data for December has already come below expectations at -2.1 per cent, indicating continued stress on the economy, he said.

The lower inflation numbers are likely to keep the market buoyant. Technology stocks, Tata Consultancy Services (up 3.88 per cent or Rs 88.50 a share to Rs 2,370.30) and Infosys (up 3.29 per cent or Rs 116.80 a share to Rs 3,665.70), were the top gainers in the 30-share Sensex index. ICICI Bank shot up 3.09 per cent (Rs 31.65 a share) to Rs 1,056.20, while ONGC rose 2.94 per cent (Rs 8.35 a share) to Rs 292 and Reliance Industries closed 2.58 per cent higher (Rs 22.10 a share) at Rs 879.

Among the 30 Sensex constituents, 21 ended higher. Larsen & Toubro, HDFC, Tata Motors and State Bank of India closed with over 2 per cent gains.

FIIs were net buyers of stocks worth Rs 413.85 crore, while domestic institutions were net sellers of Rs 317.52 crore, as per provisional figures available from the stock exchanges. FIIs have pumped in a net of Rs 645 crore (excluding Monday) so far this year, while in bonds they have been net buyers of Rs 6,963 crore ($1.12 billion).

Gaurang Shah, assistant vice-president at Geojit BNP Paribas Financial Services, said the market moved up after five days of consolidation. “After a gap-up opening, the momentum was on the upside throughout the day. The concern was on the IIP front, as there was expectation of a marginal improvement, but it turned out to be otherwise as the number was on the negative side. The move was supported further by short covering, which was visible at 3 pm as the momentum accelerated,” he said. The brokerage expected the CPI number to boost market.

The rupee firmed up by 38 paise to 61.53 against the US dollar on the day on fresh selling of the American currency by banks and exporters, which also supported sentiments in the equity market. Expectations that the December quarter would provide a positive surprise on the earnings front also helped matters.

“Our analysts forecast an 8 per cent year-on-year earnings growth in the December quarter for 148 companies under our coverage. Growth has risen for the second straight quarter and, importantly earnings growth is highest since the September quarter of 2012. This is largely on account of the export-driven sectors (IT 30 per cent, autos 40 per cent and pharma 33 per cent) and telecom (largely Bharti, lower forex loss and India operating leverage),” Axis Capital said in a note.

“Expect a weak quarter for PSU banks (mark-to-market, NPA provisions and wage revision), cement (subdued prices and cost pressure), infrastructure and power,” it said in a note on Monday.

Elsewhere, Asian stocks outside Japan rose the most in eight weeks after slower growth in the US payrolls eased concerns of Fed accelerating QE cuts, Bloomberg reported. Among sectoral indices, bank Nifty rose two per cent (216.30 points) to close at 11,021.60. Other top risers among the sectoral indices are BSE IT (2.92 per cent), BSE oil & gas (2.24 per cent) and BSE capital goods (1.55 per cent). BSE bankex rose 2.04 per cent.

In comparison, BSE midcap (0.15 per cent) and BSE smallcap (0.37 per cent) had a lacklustre session.

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