Weaker oil, gold prices propel Indian shares

Sensex posts biggest percentage gain since Sep; precious metals extend losses

Stock markets on Tuesday jumped the most in seven months as declining commodity prices dispelled worries about the country’s current account deficit and raised hopes of aggressive monetary easing by the Reserve Bank of India (RBI). The benchmark indices, which rose a little more than two per cent, closed above their 200-day moving average (DMA), a key technical resistance. Analysts, however, warned gains might not sustain as investors and traders could cut exposure at higher levels.

The Indian markets outperformed other Asian peers, which mostly fell mirroring the overnight weakness in the US stocks after the Boston bomb blasts. The surge in India was mainly because the country is considered the biggest beneficiary of falling prices of oil and gold — its biggest imports.

“The correction in crude oil and gold, besides other industrial commodities, could also bring down inflation. This would give RBI some room to lower interest rates,” said Motilal Oswal Financial Services Joint MD Raamdeo Agrawal. “And, the fall in current account deficit (CAD) could also boost the rupee,” he said.

An appreciating rupee will make imports cheaper and boost value of foreign institutional investors’ rupee holdings, such as stocks and bonds.

Barclays Capital said a reduction in oil underrecoveries, due to lower oil prices, would reduce the need to raise prices of domestic fuel, which contributes over 25 per cent to inflation.

In its biggest percentage gain since September 2012, the BSE Sensex rose 387.13 points, or 2.11 per cent, to close at 18,744.93. NSE’s Nifty gained 120.55 points to 5,688.95.

Standard gold extended losses, led by broad-based selling pressure from consumers. In Mumbai’s Zaveri Bazar, gold closed at Rs 25,900 per 10 g, against Rs 26,550 yesterday. Silver also fell, by 1.34 per cent from yesterday’s close, to Rs 46,360 a kg. Both gold and silver have fallen 12-13 per cent in a week.

FIIs net-bought Rs 592-crore shares on Tuesday. Their domestic counterparts sold to the tune of Rs 205 crore, according to provisional data.

Investors and traders were watching if the markets could extend gains, as the Nifty had a strong resistance at 5,750. Some analysts said the hopes of steep rate cuts were stretched.

“Rate cut may be more of an academic exercise because retail inflation is still above the comfort level. We could see profit-taking by domestic investors once the Nifty rallies another 100-150 points, as growth dynamics are yet to improve,” said RBS CIO (Private Banking, India) Rajesh Cheruvu.