The higher rate cut by RBI is positive for rate-sensitive sectors in the medium to long term
Benchmark share indices ended higher during the truncated week, with defensive shares leading the gains even as rate-sensitive shares trimmed gains, despite higher-than-expected interest rate cut by the Reserve Bank of India (RBI).
In the week to October 1, the 30-share BSE Sensex ended up 357 points, or 1.4 per cent, to end at 26,221 and the 50-share Nifty ended up 82 points, or one per cent, to close at 7,951. In the broader markets, the BSE MidCap Index ended 2.1 per cent higher, while the SmallCap Index ended up 0.9 per cent.
“Banks have already started passing on the benefits of the rate cut to its borrowers. However, although a short-term correction is seen, the higher rate cut by RBI is positive for rate-sensitive sectors in the medium to long term. Further, with the global economy still sluggish, investors choose to park their funds in defensives. Meanwhile, volatility in the markets is likely to continue,” says Jagannadham Thunuguntla, head of Fundamental Research at Karvy Stock Broking.
Financial and commodity markets were closed on Friday on account of Mahatma Gandhi Jayanti.
RBI on Tuesday reduced the repurchase, or repo, rate by a higher-than-expected 50 basis points to 6.75 per cent. The Street had expected a rate cut of 25 basis points. However, the central bank lowered its real GDP (gross domestic product) forecast for FY16 by 20 basis points to 7.4 per cent compared with 7.6 per cent earlier.
Meanwhile, a private survey showed that India's manufacturing activity eased to a seven-month low in September as expansion in new business and output moderated. The Nikkei purchasing managers' index declined to 51.2 in September compared with 52.3 in the previous month.
Defensive shares provided the booster dose during the week with Dr Reddy's Labs emerging as the top Sensex gainer up 6.5 per cent. The pharma major announced the launch of Esomeprazole Magnesium Delayed-Release Capsules USP in dosages of 20mg and 40mg which is the generic equivalent of Nexium following the approval of the US Food and Drugs Administration (FDA).
The company in a release said the Nexium brand and generic had US sales of around $5.2 billion for the 12-month period ended July 2015. Lupin has been on an upswing post the acquisition of GAVIS Pharmaceuticals LLC and Novel Laboratories Inc. The stock ended six per cent higher.
FMCG majors witnessed renewed buying interest with Hindustan Unilever gaining 4.2 per cent, while ITC ended 1.9 per cent higher.
In the IT pack, TCS ended 2.5 per cent higher after the company announced partnership with National Building Society in the UK for providing ignio neural automation system. Further, Axis Bank has implemented a state of the art enterprise payments hub on a modern architecture powered by TCS BaNCS. Infosys ended 2.8 per cent higher amid media reports that its Infosys Innovation Fund has invested in US-based venture capital firm Vertex Ventures.
Index heavyweight Reliance Industries ended 2.9 per cent higher amid reports that the company plans to raise $1.5 billion in two tranches to refinance its old loans.
Despite the higher rate cut by RBI, financials ended mixed while auto share trimming gains post September sales numbers. HDFC Bank and HDFC gained over 1.5 per cent each, while ICICI Bank, Axis Bank and SBI ended lower.
In the auto pack, Tata Motors ended down 2.2 per cent, while two-wheeler majors Bajaj Auto and Hero MotoCorp ended over 1.3 per cent higher.
Select housing stocks such as LIC Housing Finance, Indiabulls Housing Finance and Dewan Housing Finance surged 5-10 per cent after RBI in its monetary policy statement said it was proposed to reduce the risk weights applicable to lower value but well-collateralised individual housing loans.
Week ahead
Markets are likely to track global cues, with weak August jobs data from the US could lead to profit-taking in select shares of export-led sectors such as IT and pharma.
Further, data for India's services PMI for September 2015 is scheduled for release by Nikkei India Services PMI on Tuesday, October 6.
