Mumbai, Oct. 26: On the first day of Samvat 2068, investors waded with caution through the strong undercurrents that felled stocks last year — all the while remaining optimistic of the future on expectations of lower inflation and rates.
The caution was evident at the opening session of the special Muhurat trading today that saw the BSE Sensex ending with a marginal gain of nearly 34 points.
At the start of trading, the Sensex rose 81 points and hit a high of 17350.49, a gain of nearly 96 points. However, it could not hold on to the early advantage and ended at 17288.83, a gain of just 33.97 points.
In a similar fashion, the broad-based National Stock Exchange index Nifty rose 10.20 points, or 0.20 per cent, to 5201.80, after touching an intra-day high of 5219.25.
The uptrend was driven by capital goods, PSU and healthcare stocks. The capital goods sector gained the most, by 0.87 per cent to 10655.73, followed by the PSU index — by 0.83 per cent to 7435.10 — and the healthcare index, which was up 0.82 per cent to 6081.25.
Among the blue chips, Larsen and Toubro, Bhel, State Bank of India, HDFC Bank, Bajaj Auto, Maruti Suzuki, Bharti Airtel, Cipla and Hindalco were in the forefront on investment buying.
Investor optimism on the first day of trading was fuelled by Reserve Bank governor Duvvuri Subbaraos assessment of the economy in the central banks half-yearly review of monetary policy yesterday.
Subbarao had said the chances of a rate hike was relatively low in the RBIs December review and if inflation fell in line with projections, further rate hikes might not be necessary.
He said with falling inflation, the RBI would look to give consideration to growth and stimulate investment activity. The apex bank has raised the short-term repo rate by 25 basis points to 8.5 per cent and the reverse repo rate to 7.5 per cent, while hinting at a pause in rate hikes.
Analysts said two local factors — inflation moderating and interest rates falling — would play a very crucial role in determining the course of the markets in the months ahead.
Analysts are also keeping a close watch on the Eurozone crisis. A key European summit of top EU leaders is scheduled for today in Brussels to resolve the two-year debt crisis.
However, European markets are not very upbeat on the summit. European shares inched higher on Wednesday in a choppy session as better-than-expected US data and forecast beating results just about offset diminishing expectations for the EU debt-crisis summit.
If all goes well and inflation is tamed and interest rates do come down, we can conveniently see a Sensex of 20,000 plus. However, the conditions that need to be fulfiled are that inflation must come down and interest rates must also fall, says Alok Churiwala of Churiwala Securities Pvt Ltd.
Churiwala adds that though there are expectations that the markets may head higher this year, there is also a sense of caution as apart from the domestic factors, developments in Europe and the US might also have a bearing on stocks.
It was a combination of these factors that saw the investing community having bitter memories of Samvat 2067 where the equity indices lost over 17 per cent.
Ved Prakash Chaturvedi, chief executive (capital markets & investment management group) at L&T Finance Holdings, is hopeful of stocks doing well from now on.
He said that in the past 7-8 years, stocks had not fallen in two consecutive Samvat years.
Chaturvedi added there was a feeling that Indian markets had underperformed long enough but if interest rates fell, the markets would be in a far better shape.
Overseas investors, too, were expected to pump funds, lured by the strength of the domestic economy.
Yes the mood is of cautious optimism. However, there is a feeling that in the next six months, the interest rates may peak out and investor sentiment could reverse as a result, there is also a belief that overseas capital will start flowing to India since their respective markets are not showing any growth, Chaturvedi said.
Ambareesh Baliga, chief operating officer of Way2Wealth, said that if inflation moderated and interest rate cycle were to peak out, foreign flows might flow back to India and the emerging markets.
There has been a risk aversion (from overseas investors). The money has flown to dollar denominated bonds. After this period of risk aversion normally investors start looking for better returns. Where to get better returns than emerging markets where the growth is higher.
Baliga is of the view that banks, infrastructure and capital goods, which have been beaten down, will be amongst the gainers after the interest rate cycle turns.
Meanwhile, BSE Ltd today decided to annul all the derivatives trades transacted during the Muhurat trading because of large movement of the Sensex futures.
Trading members of the Exchange were informed that because of a large movement of Sensex futures observed during the special session conducted as Muhurat trading for Diwali, BSE has decided to annul all the derivatives trades done on October 26, 2011 under Bye Law 1.46 of Derivatives segment, BSE said in a statement here.
The exchange said that it has also suspended a member broker from trading any further in the proprietary position on the exchange in all segments and has launched a detailed investigation into the matter.
Gold prices rose in Calcutta today on the auspicious occasion of Diwali. While the price of 24-carat gold increased Rs 780 to Rs 27,955 per 10 grams from Rs 27,175 yesterday, that of 22-carat gold rose Rs 740 to Rs 26,520 per 10 grams from 25,780 today.