Sensex Reclaims Mount 28K, RBI Rate Cut Hope Fuels Rally

The S&P BSE Sensex galloped over 400 points in Monday’s trade, led by gains in HDFC, HDFC Bank, Maruti Suzuki India, M&M and L&T. The Nifty50 reclaimed its crucial level of ‘8,700’ on the back of gains in realty, oil & gas, power, consumer durables, metal, capital goods and banking stocks.

The benchmark indices have recovered most of their losses incurred last Thursday after the Indian Army claimed surgical strikes on terror bases in Pakistan, elevating geopolitical LOC tension. DGMO Lt Gen Ranbir Singh had informed the media that things were in control after the surgical strikes and also the Indian Army was prepared for further hostilities across the border. The aura of the Dalal Street is buzzing with the following factors which happened to fuel the domestic market on Monday:

The hope of a rate cut by the RBI on Tuesday: Firstly, the hope of a rate cut by the RBI – Reserve Bank of India on Tuesday could have been one factor fuelling the rally on the Dalal Street.

A total of 14 out of 18 banks and financial institutions expect RBI to cut rates, while the remaining feel that the rates might remain unaltered as the nation steps into the league of developed countries by having a panel to decide upon policy rates. Retail inflation, a key reason which the central bank (RBI) considers in deciding policy rates, was at 5.05 percent in the month August, the lowest in 6 months.

Contraction in India VIX – Volatility Index: A sign which brings solace to the bulls is the ‘contraction in India VIX – Volatility Index’. The India VIX, a measure of the market’s shortterm expectation of volatility, contracted 6.7 percent on Friday to ‘16.02’ from ‘17.18’ recorded in the last session. However, there still remains a hangover of the steep 33 per cent spike witnessed in the volatility index (VIX) last session, which hasn’t left the minds of the market participants. The comfort would return to the market if India VIX cools below ‘15.50’.

Technical reasons: The Nifty50 was able to break above its crucial psychological level of ‘8,700’ in trade, which is a sign of optimism. Now, even if the index pares intraday gains and settles above the ‘8,688’ level (which has become a stiff hurdle for the Nifty50), it shall still be an optimistic inkling for the bulls.

According to market experts and stock analysts, the index has to now cross and stand stable above the 8,688 level to get relief or bounce back towards 8,767 and followed by 8,820 levels. The analysts added that if the index fails to hold above the ‘8,558’ mark, then it might commence to decline towards the ‘8,400’ level.

Robust growth in sales of automobiles: Auto stocks galloped up to 6 per cent after Maruti Suzuki, M&m, Eicher Motors, reported a robust sales growth in the month of September. S&P BSE Auto Index proved to be the largest sectoral gainer in Monday’s morning session, rising close to 2.5 percent.

The Deutsche Bank effect: On Friday, the domestic market received a strong handover from the US markets. After media reports stated that the Deutsche Bank was negotiating a much smaller fine with the United States Department of Justice, the Asian markets too began trading higher. The Dow Jones Industrial Average zoomed 164 points, or 0.91 percent, to ‘18,308’ in Friday’s trade. The Nasdaq Composite climbed 42 points, or 0.81 percent, to ‘5,312’.The S&P500 index ascended 17 points, or 0.8 percent, to ‘2,168’.

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