Bulls Back on the Street

Indices surge 3% as banking, consumer stocks lead rally; FII buying at Rs 2,900 cr

Indian markets on Tuesday posted their biggest single-day jump in 30 months, following a sharp rally in consumer and banking stocks such as ITC and ICICI Bank.

Rate-sensitive banks, automobile and real estate shares soared on hopes that the Reserve Bank of India (RBI) will soon announce an out-of-turn cut in policy rates on the government's commitment, made evident with the Union Budget on Monday, to meet the fiscal deficit targets.

Read more from our special coverage on "MARKETS"

• Markets surge 3% on rate cut hopes, budget rural boost
• Sensex vaults 777 points on rate-cut hope; ITC surges 10%
• 3 reasons why the Sensex has rallied over 700 points
• Stock specific action to dictate trend
• Top intraday calls from Chandan Taparia of Anand Rathi

The sharp spurt in the market triggered a way of short covering - buying stocks that have been short sold, typically to avoid losses - which further accentuated prices, said market players.

The 30-share Sensex gained 777.35 points, or 3.38 per cent, to end the session at 23,779.35, with all but three of its components ending with gains.

The NSE's Nifty 50 index rose 235.25 points, or 3.37 per cent, to settle at 7,222.3.

Both indices gained the most since September 19, 2013, in percentage terms, while it was the best day-after-Budget performance since 2011.

Shares of ITC surged 10 per cent, most in six years, while ICICI Bank rallied nearly eight per cent, most in 10 months. Both stocks contributed to a third of the gains in the benchmark indices.

Consumer stocks gained in anticipation of growth in demand, resulting from the boost to rural demand. Positive global markets on China's stimulus announcement also boosted investor sentiment.

Devendra Joshi, equity strategist, HSBC, and market expert Herald van der Linde said the delicate balance between growth and fiscal prudence in the Budget was a sentiment booster and positive for equities and bonds.

The rupee ended at 67.86, compared to Monday's close of 68.42, while yields on the 10-year benchmark government security softened another two basis points on Tuesday.

The sharp appreciation in the rupee was on account of foreign institutional investors (FII) inflow of Rs 2,900 crore on Tuesday.

However, nearly Rs 2,000 crore of it was on account of a block transaction in Kotak Mahindra Bank. Domestic investors sold shares worth around Rs 834 crore, provisional data showed.

Government bonds surged on rising buying support from banks and corporates. While, the overnight call money rates ended lower because of lack of demand from borrowing banks. The 7.59 per cent government security maturing in 2026 advanced to Rs 99.89 from Rs 99.7550 previously, while its yield edged down to 7.6 per cent from 7.62 per cent.

Gautam Chhaochharia, head of research, UBS India, said the Budget has provided room for a 50 basis point rate in policy rates in 2016. "The Budget is unlikely to alter market trajectory though and global risk environment should drive markets near-term," he said.

Most global equities, emerging market currencies, and crude oil prices advanced on Tuesday after the People's Bank of China's move to cut lenders' reserve requirements improved risk appetite.

The rally seen in the Indian markets on Tuesday was broad-based with over three stocks advancing for every one declining. All sectoral indices ended with gains, while the gains in small-cap and mid-cap indices were in line with the benchmark indices.

The gains follow a horrid performance last month, when the benchmark Sensex fell nearly eight per cent, in its worst monthly performance since November 2011.

Brokers said lot of short positions had out built in the system following last month's weakness and traders had to cover these shorts as buying momentum remained strong. The benchmark Sensex is now down nine per cent this year. UBS has set a year-end Nifty target of 7,500, less than four per cent upside from current levels.

Reference - http://www.business-standard.com/article/markets/bulls-back-on-the-street-116030200058_1.html