Nifty advances to 5,200…All eyes on RBI policy meet

After a gap up opening, Indian indices continued their rise aided by buying in Power, Capital Goods, Consumer Durables, Banks, and some rate-sensitive sectors such as Realty and Auto. Markets finished near the day’s high levels with the Sensex surging over 300 points and the Nifty crossing the psychological 5,200 mark. The broader 50-stock index also closed at the crucial level. The Nifty has now ended with gains for the second straight trading session and has rebounded by ~170 points after hitting a low of 5032 in previous week. The Mid-Cap and the Small-Cap stocks which were badly beaten down also witnessed some buying momentum. The BSE Small-Cap index closed up 1.3% while the BSE Mid-Cap index ended with gains of 1.5%. An optimistic mood across world markets ahead of central bank meetings this week on interest rates also helped life the sentiment. Fragile growth in the US and the two-year old debt crisis in Europe have caused central banks across the world to lower interest rates in recent weeks to support their faltering economies. Banks may continue doing so in the weeks to come. All eyes will be on the Reserve Bank of India’s monetary policy meeting on Tuesday. On Wednesday, the US Fed's open market committee will meet while on Thursday the European Central Bank's rate and monetary policy meeting will take place. It remains to be seen if the apex bank in India obliges the markets with a rate cut amid sticky inflation, slowing growth, policy inaction, and more recently, an unfavorable monsoon. In Asian market action, Japan’s Nikkei and South Korea’s KOSPI rose 0.8%, Hong Kong’s Hang Seng climbed 1.6%, Singapore Straits Times gained1.1% and Australia’s S&P/ASX 200 closed up ~0.9%. China was the only market with ended with losses with the Shanghai Composite losing 0.9%. The metals stocks were among the top laggards. Meanwhile, European stocks advanced with London’s FTSE up 0.6% while France’s CAC and Germany’s DAX were up over 1% each. The Euro Zone’s July economic sentiment indicator fell to 87.9 from 89.9 in June. The consumer confidence index fell to -21.5 in July from -19.8, while the industry sentiment index dropped to -15.0 from -12.8. Spanish GDP contracted 0.4% in Q2, versus previous quarter. On an annual basis, GDP contracted 1%. The IMF said that the economic outlook for Spain "remains very difficult and vulnerable to significant downside risks." Fears that the country may need a full bailout pressured Spanish bonds in recent weeks, sending yields soaring. All sectoral indices ended with gains of 1-3.6% with Power being the biggest gainer. Capital Goods, Consumer Durables, Banks, and some rate-sensitive sectors such as Realty and Auto were other notable gainers ahead of the RBI’s policy meet on Tuesday. A rate cut by the central bank would create demand and aid the sectors. The INDIA VIX on NSE gained by 1% to close at 16.60. It hit a day’s high of 17.32 and a day’s low of 16.43. The market breadth on the BSE was positive, 1612 stocks ending higher and 1146 stocks slipped. Reliance Infra, JP Associates, Cairn, IDFC, SBI, BHEL, Tata Power, DLF, Axis Bank and Tata Motors were the notable gainers on the Sensex and the Nifty today. Ambuja Cement, Hindustan Unilever, HCL Tech and ONGC were among the losers on the Nifty. "All eyes will be on The Reserve Bank of India monetary policy review meeting tomorrow. In addition, on Wednesday, the US Fed's open market committee will meet while on Thursday the European Central Bank's rate and monetary policy meeting will take place. Domestically, high inflation, rising fiscal deficit and monsoon worries could well hold back the RBI from cutting rates," says Amar Ambani, Head of Research, IIFL. 3i Infotech gained after it allotted 4.45mn shares to Credit Suisse among others against convertible debt. DLF rose 1.2% on reports that the company was to sell its 17.5-acre land in Lower Parel, Mumbai to Lodha Group and a PE firm for Rs.27-28bn. Godrej Properties advanced after its 1Q group net income spiked 71% YoY to Rs.172mn. ICICI Bank climbed after Barclays raised the stock’s price target by 9% to Rs.885 and maintained its ‘equal weight’ rating. IRB Infrastructure advanced after its 1Q net income climbed 6% on year to Rs.1.42bn beating analyst estimates of Rs.1.12bn. REC gained after its 1Q net income rose 32% from the same period a year ago to Rs.8.77bn, beating analyst estimates of Rs.7.78bn. Sterlite Technologies moved up after the company’s 1Q net income increased three times to Rs.183.3mn from Rs.52.3mn in the same quarter in the previous year. Suzlon climbed after it borrowed and sold its assets to pay a $360mn debt. Thomas Cook gained after the company’s 2Q operating income stood at Rs.1.13bn against Rs.1.05bn in the year ago period. Alstom T&D slipped after its 1Q net income fell 49% on year to Rs.230mn. Deccan Chronicle declined on reports that company’s promoters pledged 54% stake to Future Capital. GHCL lost after its 1Q net income came in at Rs.293mn, down from Rs.476mn in the year ago. Maruti Suzuki fell after its 1Q profit slipped 23% YoY to Rs.4.23bn rupees and missed analyst estimates of Rs.4.9bn. The stock was also pressured after the company said it was difficult to determine when to start the Manesar plant after it was attacked in mid-July by workers. McLeod Russel moved down after its 1Q net income came in at Rs.193.1mn, down from Rs.373.3mn in the same quarter a year ago. Punjab & Sind Bank fell after the bank’s 1Q profit came in at Rs.240mn, down from Rs.641mn in the year ago period.