Markets cheer slipping oil prices

Sensex up 139 points, rupee spurts to 45.97, 10-year gilt yields ease to 7.61%.

The yield on government bonds dropped, the rupee pierced the 46 to a dollar level to close at 45.96/97 to a dollar and the Bombay Stock Exchange's 30-share sensitive index (Sensex) rose by 139 points, riding high on the continuous decline in crude oil prices and due to chances of another rate hike by the US Federal Reserve fast receding.

Tell-tale signs of the US economy's slowdown have dramatically changed Indian market sentiment.

Oil prices fell to six-month lows of below $61 a barrel today. With this, it has retreated over $17 from its July record high of $78.40, its steepest decline in 15 years.

Finance Minister P Chidambaram told a news agency in Singapore today he hoped that if oil prices dropped, inflation should moderate and help ease the upward pressure on interest rates.

The yield on the 10-year benchmark government bond dropped to 7.61 per cent today, from yesterday's close of 7.73 per cent. It is 81 basis points below its four-and-a-half-year high of 8.42 per cent in July. One basis point is one hundredth of a percentage point.

In tandem, the Indian currency strengthened beyond 46 to a dollar, to close at 45.96/97, from 46.075/085 yesterday. Bankers have started ruling out the possibility of a rate hike by the Reserve Bank of India in its mid-year policy review next month.

The stock market bounced back from a 150-point knock in late trade yesterday to edge past 12,000 today.

The Sensex, which slipped 134 points in early trade to the day's low of 11,834, recovered smartly on sustained buying in heavyweight automobile and technology counters. The index rose to its intra-day high of 12,129 before closing at 12,109.14.

The broad-based S&P CNX Nifty closed at 3,502.80, up 45.45 per cent. "The undertone is bullish. Foreign institutional investors (FIIs) show no indication of any huge selloff," an analyst said.

According to provisional data, FIIs were net buyers for Rs 128.19 crore today, after buying for Rs 174.31 crore yesterday.

All the key indices closed higher, with the BSE Tech Index being the best performer. It saw a rise of 1.62 per cent, followed by the BSE Auto Index (up 1.19 per cent) and the BSE FMCG Index (up 1.09 per cent).

Top gainers included Bharti Airtel, which rose by 5 per cent to Rs 462, followed by Reliance Communications (up 4.33 per cent to Rs 346), Oil and Natural Gas Corporation (up 1.78 per cent to Rs 1,173), National Thermal Power Corporation (up 1.77 per cent to Rs 130) and Larsen & Toubro (up 1.87 per cent to Rs 2,697).

Analysts do not expect the Fed to go for another round of rate hikes now, with the latest data on US housing and the producers price index (PPI) looking soft.

"This will ease the pressure on inflation and give breathing space to the economy. The markets are reflecting the new dynamics," Nitin Jain, head of fixed income, ICICI Securities, said.

The Federal Open Market Committee, the policy making body of the Fed, took a pause in August after 16 hikes in a row, raising the Fed rate from 1 per cent to 5.25 per cent.

Bond dealers have started betting on a further fall of the yield and rise in bond prices, with the US facing a slowdown and chances of a rate hike receding. "Some of the data have surprisingly been on the downside," said a bond dealer.

The latest "housing starts" data showed continuation of the declining trend. The PPI data, a barometer to gauge the pressure on the manufacturing sector to raise prices, was 0.4 per cent, against expectations of a rise of 0.2 per cent.