Banks lead gains as markets trend up

Hopes of another rate cut by the Reserve Bank rise on the Street

The markets closed in positive territory, with banking stocks leading gains  on hopes of lower interest rates.  

Two of the top three rising stocks on the 30-stock S&P BSE Sensex come from the lending space. State Bank of India was the best-performing stock in the Sensex on Friday. It was up 2.4 per cent to close at Rs 287.35. Housing Development Finance Corporation was up 2.1 per cent. It closed at Rs 1,233.95.

Key benchmark indices were trading with gains on Friday. The S&P BSE Sensex was trading at 27,324.00; up 117.94 points or 0.4 per cent. The CNX Nifty on the National Stock Exchange was similarly up, at 8,262.35.

Analysts believe the recent inflation figures leaves more room for the Reserve Bank of India (RBI) to lower interest rates, a positive for lending activity. The wholesale price index (WPI) data on Thursday showed a fall of 2.65 per cent for April, the sixth month it has shown a decline. Consumer price index data for April was at the lowest in four months, at 4.86 per cent.

 

Lower inflation leaves more room for the central bank to cut rates. RBI is set to meet in June to decide on policy.

Eight out of 12 sectoral indices on the BSE ended with gains. Consumer durables was down 0.8 per cent, fast moving consumer goods were up 0.7 per cent and the healthcare index was down 0.65 per cent. The metal and realty indices were down 1.05 per cent and 1.3 per cent, respectively.

“Ignoring poor industrial production data, the markets took some hope from lower than expected CPI and WPI data, as a rate cut possibility has now started getting factored in before or in the June credit policy review,” said Ravi Shenoy of Motilal Oswal Securities.

“The recent phase of range-bound correction is led by foreign institutional investors (FIIs), influenced by factors like increase in European bond yield, outperformance of other emerging markets and currency volatility. On the positive side, the latest CPI trajectory provides scope for a rate cut by the next RBI meet. This is likely to provide a support to this range-bound correction. Also, in the near term, there is a risk as the market factors the extent of further earnings downgrade, considering the FY16 earnings growth expectation continues to be more than 20 per cent,” said Vinod Nair, head, fundamental research, Geojit BNP Paribas Financial Services.

Key triggers in the days ahead include foreign flows, news about the monsoon and the outcome of the remainder of the earnings season, say experts.  

FIIs were net sellers by Rs 38.3 crore on Friday, according to provisional data from the exchanges. Domestic institutions were net buyers by Rs 563.6 crore.