With Worry Clouds Receding, Markets Race Ahead
Key indices gain 2% on hopes of more rate cuts, may gain another 3% in the near-term
Easing inflation and forecasts of above-average monsoon delivered a shot in the arm for Dalal Street that appeared tentative after the recent rally. Key indices rose almost 2% to a 3½month high on Wednesday as traders bet that Reserve Bank of India (RBI) may cut rates further encouraged by falling prices and better rains. Upbeat economic data from China, which triggered a rally in Asian markets, also aided sentiment. The bullish momentum could drive the benchmarks up by another 2-3% in the near-term if the build-up in Nifty options is to go by. Beyond that, a lot will depend on the fourth quarter earnings season of companies and sentiment in global market.
Till last weekend, market participants planned to play it safe in this shortened trading week. The markets will be shut on Thursday for Dr Ambedkar Jayanti and on Friday for Ram Navami. Usually, traders hesitate to keep positions open during such elongated weekend. But, predictions of better rains this year by the Met and private forecaster Skymet encouraged traders to mount bullish positions, helping the stock market extend gains to the fourth straight day.
BSE’s Sensex gained 481.16 points, or 1.91%, to close at 25,626.75. NSE’s Nifty rose 141.50 points, or 1.84%, to close at 7,850.45. Both indices have closed at their highest levels since January 1. On the 50-share Nifty, 44 stocks advanced, while six declined. Shares of companies in two-wheeler and agri-related sectors were among the top gainers. M&M, the biggest Nifty gainer, rose 7.3%. ICICI Bank, Maruti Suzuki, BHEL and Bajaj Auto gained 4-5% each.
Market participants bought Nifty call options of strikes 7900, 8000 and 8100. Open interest in Nifty 8100 calls rose 34% on Wednesday. Simply put, a call buyer bets on the index or stock to rise.
“Stable global conditions, a good quarterly results season and passage of key legislative bills in the forthcoming second half of the budget session could sustain market sentiment for some more time,” said Sanjeev Prasad, co-head - strategy, Kotak Institutional Equities.
But, valuations suggest that there is limited scope for upside from