Sensex gains 374 points on hopes of rate cut

Mumbai, May 13 : A day after it fell 630 points on worries over retrospective tax issues with foreign funds, a benchmark index of the Indian equities markets, the 30-scrip BSE sensitive index (Sensex) made gains during Wednesday’s trade on expectations of a rate cut.The Sensex closed 374 points or 1.39 percent up on Wednesday, as the markets expected the apex bank to lower interest rates in accordance with the slowdown in retail inflation.However, the Sensex had a choppy session on Wednesday as it dipped into the negative zone around noon after gaining more than 300 points during the morning session. The wider 50-scrip Nifty of the tiol Stock Exchange (NSE) also closed the day’s trade by making gains. It closed higher by 108.50 points or 1.34 percent at 8,235.45 points.

The Sensex of the S&P Bombay Stock Exchange (BSE), which opened at 27,023.71 points, closed the day’s trade at 27,251.10 points, up 373.62 points or 1.39 percent from the previous day’s close at 26,877.48 points.The Sensex had touched a high of 27,299.80 points and a low of 26,750.01 points in the intra-day trade.

The barometer index had closed Tuesday’s trade down 630 points or more than two percent, due to heavy selling by foreign investors on the back of the minimum alterte tax (MAT) dispute, free-falling rupee value and disappointing fourth quarter results. The Nifty of the NSE had also closed Tuesday’s trade deep in the red. It closed 198.30 points or 2.38 percent down at 8,126.95 points.

“Markets ended a volatile day with gains of more than 1 percent. Concerns over the high bond yields in US and Germany, as well as, the uncertainty over Greece played on the sentiments of the markets. Bargain hunting at lower levels resulted in gains for the day,” said Dipen Shah, head of private client group research with Kotak Securities.

“Going ahead, stock specific action will be  seen in line with the quarterly results, which are yet to be declared. The RBI policy meeting in June will be closely watched. On the global front, developments on Greece and any indications on US rate hikes will dictate sentiments.”

On Tuesday official data indicated belied hopes for a strong industrial recovery as factory output slowed to 2.1 percent in March, even as the retail inflation eased nearly 40 basis points to 4.87 percent in April. Alysts said this should make India Inc. exert more pressure on the Reserve Bank of India (RBI) to ease its interest rates in its monetary policy update in June, or even earlier, since the industry needs a push for sustained growth, even as easing of inflation is a comforting factor.

Vinod ir, head of fundamental research with Geojit BNP Paribas Fincial Services said that the latest CPI (consumer price index) trajectory has provided scope to cut rate by the next RBI meet on June 2nd. “This is likely to provide a support to the range bound correction led by FIIs (Foreign Institutiol Investors) due to global factors like increase in Europe bond yield, out performance by other EMs (emerging markets) and currency volatility,” ir added. (ians)