Indian investors, who missed out on the stock rally that followed the rate cut by US Fed, had a chance on Friday when Bank of Japan lowered interest rates after seven years. This, together with a softening of inflation in India and expectations that RBI and other authorities like the European Central Bank could pursue a loose monetary policy, prompted some institutional buying in Indian stocks.Even as most Asian and European markets bled amid fears of a global recession, the Sensex rose 744 points to 9,788 on Friday on the back of more than Rs 1,200-crore net stock purchase by FIIs. However, domestic institutions, including MFs, which are battling redemption pressures, chose to book profits.
Market sources said Friday’s upswing was kind of a relief rally which would not last long, as the undertone still remained bearish. The trigger was mainly the drop in inflation, which fell to 10.68% for the week-ended October 18, from 11.07% in the previous week. “The market will continue to be volatile as investors are not getting any signals from the global markets that the worst may soon be over,” said a fund manager on condition of anonymity.
In the local market, all eyes are now on RBI. There are expectations that the central bank will either cut the cash reserve ratio further or take alternative steps to improve liquidity and calm down the money market. A consistent decline in inflation has sparked hopes that the central bank may follow in the footsteps of its US and Japanese counterparts. China, Hong Kong and Taiwan have already cut rates, while ECB and Australian central bank are expected to cut rates next week.
Since the cut in the benchmark rate by Bank of Japan to 0.3% from 0.5%, was less than expected, markets like Japan, China and Hong Kong slipped. Nikkei fell as much as 5% The fall in key Asian markets, barring India, was despite overnight gains in the US market. The Dow Jones Industrial Average and Nasdaq Composite Index rose 2.1% and 2.5%, respectively, on Thursday on the back of the Fed move and better than expected GDP data.
Firm US markets and positive inflation data helped the Indian market emerge as the biggest gainer in Asia on Friday, with the Sensex jumping 744 points, or 8.2%, to 9,788. The NSE Nifty shot up 189 points, or 7%, to 2,886. In the domestic market, metal stocks witnessed major buying, with the BSE Metal index spurting 10%, followed by Oil & Gas and Bankex indices recording gains of 9.1% and 7.2%, respectively. Contributing to the Sensex’s 744-point rally, index heavyweight Reliance Industries (RIL) surged nearly 14% to end at Rs 1,371.
The scrip was buoyed by a statement from petroleum ministry, which said the $ 4.20 per metric million British thermal units price fixed for its KG-D6 block gas was only for valuation purposes and the selling price could be higher.
Utility vehicle major M&M stole the show on Friday, gaining 23%. HDFC, Jaiprakash Associates and ICICI Bank were among the other top gainers on Friday.
“Though fears of a recession still loom over global economy, the situation does not appear as pathetic as in 1929-30 when the slowdown lasted for about four years. Governments and central banks in affected countries are taking quick remedial action to overcome the crisis,” said Centrum Broking MD, Devesh Kumar. In India, he felt, the slowdown fears are not as alarming as in other major economies in the world, as the growth here was mostly driven by domestic consumption.
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