India’s equity rallied sharply during the second half of Thursday’s trading session amidst renewed hope of a dovish monetary policy by the Reserve Bank of India (RBI). Further, a halt in selling by foreign institutional investors (FIIs) lifted sentiments.
Benchmark indices – BSE Sensex and NSE Nifty50, recovered from early losses and settled in green for the fifth consecutive session. The Sensex closed 809.53 points or 1 per cent higher at 81,765.86 while the Nifty50 settled at 24,708.40, up 240.95 points or 0.98 per cent.
"A positive turnaround from FIIs for the past couple of days to India in expectation of a dovish monetary policy by RBI supported the sentiment,” said V K Vijayakumar, Chief Investment Strategist, Geojit Financial Services.
He said the market experienced a sharp recovery from the day's low, closing with strong gains.
He added that stability in November service PMI data despite a rise in inflation shows steadiness in business activity.
Prashant Tapse, Analyst at Mehta Equities, also stated that market movements are being driven by expectations around the RBI's monetary policy decision and potential liquidity measures in response to weaker-than-expected economic growth.
“While some expect a cash reserve ratio (CRR) cut to signal policy loosening, the RBI has remained cautious due to inflation concerns above its 4 per cent target," Tapse said
He said that a rate cut is unlikely at this meeting as the central bank may await further macroeconomic data before easing policy.
The RBI’s Monetary Policy Committee is all set to announce its decision on the key interest rate on December 6 (Friday). Most experts believe that the apex bank will keep the repo rate unchanged at 6.50 per cent even as there is a growing call for a rate cut to lift India’s slowing economic growth.
For instance, global brokerage and financial firm Nomura believes that the RBI will go for a rate cut on Friday. Aurodeep Nandi, India Economist at Nomura expects RBI to announce a 25 basis points repo rate cut and 50 basis points Cash Reserve Ratio (CRR) to address the economic slowdown and infuse liquidity.
“When your forward-looking (inflation) forecast is pretty well anchored at 4-4.5 per cent, and the GDP print that we got of 5.4 per cent is pretty shocking when India's trend growth is 6-7 per cent. That is not normal," he said.
"This means that not only does the RBI need to downgrade its GDP forecast for FY25 which is at 7.2 per cent currently, but also reassess its confidence on the growth cycle. This is the time to do the rate cut, because monetary policy has to be forward-looking," he added.
The Thursday rally was led by IT stocks with TCS, Infosys, and LTIMindtree surging 2 per cent and more. The Nifty IT index scaled a fresh 52-week high of 45,027.95 during the intra-day deals. Nifty Oil & Gas, Auto, and Private Banks also advanced about 1 per cent each on Thursday.
In the broader market, the Nifty Midcap100 and Nifty Smallcap100 indices ended higher by 0.57 per cent and 0.83 per cent, respectively.
Ajit Mishra – SVP of Research, Religare Broking said that the recent market surge has already factored in potential support from the RBI, making the market's reaction to Friday's outcome crucial.
Mishra added that while the IT and banking sectors continue to drive the index higher, broader sectoral participation will be essential for extending this rally.
“With the Nifty reclaiming 24,700—a level targeted after the breakout above 24,350—its sustenance could pave the way for a move toward 25,100. Amid this setup, we emphasize the importance of focusing on stock selection, given the selective participation across sectors,” he said.
Meanwhile, in a big positive for the Indian market, the FIIs have returned as net buyers. They infused more than Rs 13,000 crore (as net buyers) on December 2 and 3, and Rs 1,797 crore on December 4. Continuous selling by FIIs for more than 2 months played a big role in pulling back the market from late September highs.