 "Markets surge 3% on rate cut hopes, budget rural boost")
The Indian markets on Tuesday posted their biggest single day jump in 30 months following a sharp rally in consumer and banking stocks such as ITC and ICICI Bank. Rate-sensitive banks, automobile and real estate shares soared on hopes that the Reserve Bank of India (RBI) will soon announce an out-of-turn cut in policy rates on government's commitment to meet the fiscal deficit targets.
The sharp spurt in the market triggered a way of short covering which further accentuated prices, said market players.
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The 30-share Sensex gained 777.35 points, or 3.38 per cent to end at 23,779.35, with all but three of its components ending with gains. The NSE's Nifty 50 index rose 235.25 points, or 3.37 per cent to settle at 7,222.3. Both the indices gained the most since September 19, 2013 in percentage terms, while it was the best day-after-budget performance since 2011.
Shares of ITC surged 10 per cent, most in six years, while ICICI Bank rallied nearly 8 per cent, most in 10 months. Both the stocks contributed to more than a third of the gains in the benchmark indices.
Consumer stocks gained in anticipation that the measures to boost rural demand would spur growth. Positive global markets on China's stimulus announcement also boosted investor sentiment.
HSBC equity strategist Devendra Joshi and Herald van der Linde said the delicate balance between growth and fiscal prudence in the Budget is a sentiment booster and positive for equities and bonds.
The rupee ended at 67.86 compared to previous day's close of 68.42, while the yields on the 10-year benchmark government security softened another 2 basis points on Tuesday.
The sharp appreciation in the rupee was on account of foreign institutional investors (FII) inflows of Rs 2,900 crore on Tuesday. However, nearly Rs 2,000 crore of it was on account of a block transaction in Kotak Mahindra Bank. Domestic investors sold shares worth around Rs 834 crore, provisional data showed.
Gautam Chhaochharia, head of research, UBS India said the Budget has provided room for a 50 basis point rate in policy rates in 2016. "The Budget is unlikely to alter market trajectory though and global risk environment should drive markets near-term," he said.
Most global equities, emerging market currencies and crude oil prices advanced on Tuesday after People's Bank of China's move to cut lenders' reserve requirements improved risk appetite.
The rally seen in the Indian markets on Tuesday was broad-based with over three stocks advancing for every one declining. All sectoral indices ended with gains, while the gains in smallcap and midcap indices were in line with the benchmark indices.
Tuesday's gains follow a horrid performance in last month, when the benchmark Sensex fell nearly 8 per cent, in its worst monthly performance since November 2011.
Brokers said lot of short positions had out built in the system following last month's weakness and traders had to cover these shorts as buying momentum remained strong. The benchmark Sensex is now down 9 per cent this year. UBS has set a year-end Nifty target of 7,500, less than 4 per cent upside from current levels.
