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

The Economic Times - - Sports - Our Bu­reau

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

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