Sensex spurts on rate cut hopes, global bounce

The Indian markets left the disappointment over May inflation data behind and braced for the significant upcoming events by notching solid gains. With this, the BSE Sensex and the NSE Nifty erased Thursday’s losses. Rate sensitive sectors like Banking, Auto and Realty paced the rally today, unlike Thursday when they had fallen sharply. Despite cautious comments from the RBI Governor, the markets still expect the central bank to opt for some monetary easing on June 18. The undercurrent was also buoyed by positive global cues across the board. Risky assets rallied globally on growing speculation that leading central banks are prepared to intervene if the outcome of Sunday’s Greek elections is unfavourable. The Bank of Japan left its monetary policy unchanged but the Bank of England announced measures to deal with the uncertainty over the worsening eurozone credit crisis. The ECB also pledged its support for the credit markets. The Sensex and the Nifty both gained ~1.5% each today. The Sensex came close to the 17,000 mark in intraday trade while the Nifty almost touched 5,150. The broader market was rather subdued, with the Small- and Mid-Cap indices rising by ~0.5% each. Apart from the rate sensitives, Capital Goods, FMCG, Metals, Power and IT indices rose by 1% to 1.5%. Tata Motors was a big winner after the company announced better-than-expected global sales volumes, including that of Jaguar and Land Rover (JLR). Grasim, Ambuja Cement and ACC also posted solid gains. On the other hand, ONGC, Sesa Goa, Sterlite Industries and Bajaj Auto closed in the red. The BSE Sensex ended at 16,949, up 272 points or 1.6% over the previous close. It had earlier touched a day’s high of 16,967 after opening at 16,701. The NSE Nifty closed at 5,139, up 84 points or ~1.7% over the last close. It earlier touched a day’s high of 5,146 after opening at a day’s low of 5,069. The main Indian equity benchmarks continue to rally in the afternoon trade, reversing part of the decline witnessed in the previous session, as Banking shares have recovered some of Thursday's losses on expectations of monetary easing at the RBI's policy review on June 18. The global sentiment has been lifted by media reports that the world's leading central banks are ready to step in if the credit markets freeze in the wake of this weekend's Greek elections. What is heartening about today's trade so far is that the advance is broad-based, with the broader indices too rising modestly. Even within the main indices, the advance-decline ratio is skewed towards the bulls. In addition, all the sectoral plays on the BSE and NSE are trading with a positive bias. The INDIA VIX is down marginally. "The race for the Rashtrapati Bhavan has turned into a tussle between the Congress and TMC. Both camps have dug in their heels. The outcome may not have a bearing on political stability but it will definitely add to the credibility deficit of UPA II. In the near term, markets will swing to the beat of important events like Greek elections, RBI policy meet, FOMC meet and the G-20 Summit. Instead of taking each day as it comes, we have reached a situation where one needs to take each news as it comes. Make use of short-term bounces to lighten your positions. India’s macro-economic picture has worsened, with exports and imports both falling in May. Trade deficit is higher in May vs. April. Headline WPI inflation has inched up but the worry is sharp revision in March print. Core inflation seems to be under control for now. However, the sharp increase in MSP of Kharif crops is a cause for concern so is the suppressed inflation in petroleum products. Fiscal deficit also remains quite high and the Government continues to dither over measures like hiking urea and diesel prices. So, the RBI has a tough choice to make on June 18," says Amar Ambani, Head of Research, IIFL. Asian markets closed smartly higher today while the European markets opened with a positive bias. Banks were among the leading gainers across Europe. Spanish stocks rose and bond yields eased. Greek ASE index erased gains after a higher start. The ASE index had rallied 10% yesterday on reports that the pro-austerity party could win the June 17 elections. The European Central Bank (ECB) stands ready to provide support to the euro-zone system, said its President, Mario Draghi, in a prepared speech on Friday. "The Euro system will continue to supply liquidity to solvent banks where needed," he said at the ECB Watcher's conference. World's leading central bankers are poised to take measures to maintain liquidity in global credit markets should a crunch arise following Greek elections this weekend, media reports suggested on Thursday, citing an official from the G-20. The emergency plans were confirmed by other G-20 officials as well, who will hold a summit in Mexico beginning June 18. Separately, the Bank of England (BOE) Governor Mervyn King said that the UK central bank will activate a sterling liquidity facility to aid banks, and plans to have a form of credit easing operating to boost lending as the case for looser policy is growing. UK's Chancellor George Osborne said that the BOE will activate an emergency lending program and that the Treasury would provide cheap funds to banks if they boost lending to households and companies. UK's Chancellor George Osborne said that the BOE will activate an emergency lending program and that the Treasury would provide cheap funds to banks if they boost lending to households and companies. The Bank of Japan (BOJ) on Friday left its benchmark interest rate unchanged near zero and also refrained from announcing any fresh monetary stimulus, as it stays on the sidelines ahead of the weekend elections in Greece. The decisions were unanimous at the policy-setting board of the central bank, and in line with market expectations. Commodity prices rose for a second day on expectations that central banks may increase measures to boost economies as Europe’s debt crisis deteriorates. US stocks were buoyed yesterday after jobless claims and inflation data supported the case for more stimulus by the Federal Reserve, which meets for two days from June 1.