Rate cut hopes, healthy domestic cues lift equity indices

Short covering ahead of the August derivatives expiry, coupled with hopes of a rate cut by the Reserve Bank of India (RBI), healthy auto sales data and manufacturing data for the month of August, contributed to the bull run of key Indian equity indices for the third consecutive week.

Besides, investors` sentiments remained upbeat over positive global cues on the back of easing geo-political tensions and persistent purchasing activities by domestic institutional investors (DIIs). 

On a weekly basis, the 30-scrip Sensitive Index (Sensex) of the BSE surged by 296.17 points or 0.94% to close at 31,892.23 points. Meanwhile, the Nifty50 of the National Stock Exchange (NSE) closed at 9,974.40 points, up 117.35 points or 1.19%.

"The Nifty stayed above the recent low of 9,685 (August 11) during the week... There were alternative sessions of gain and loss. But, the VIX (volatility index) eased down and other bearish signals also eased off during the week," Dhruv Desai, Director and Chief Operating Officer of Tradebulls, told IANS.

Vinod Nair, Head of Research, Geojit Financial Services, said scale up of favourable domestic cues, better than anticipated tax collection under the GST regime, short covering ahead of the futures and options (F&O) expiry and positive global market due to easing tensions, gave a fillip to market sentiment.

"Q1FY18 gross domestic product (GDP) of 5.7% which was much below the consensus estimation of 6.5%, surprised on the downside. The impact of demonetisation and effect of de-stocking ahead of the GST pulled down the growth," said Nair.

Official data released on Thursday evening showed that growth in the Indian economy during the first quarter of this fiscal fell to 5.7% pulled down by sluggish manufacturing.

According to data from the Central Statistics Office (CSO), India`s gross domestic product (GDP) for the first quarter at Rs 31.10 lakh crore grew 5.7% over the same quarter last year. During the previous quarter, the GDP had grown by 6.1%.

"The weak growth is raising hope the RBI will cut its main policy repo rate at its next policy meeting in early October, after cutting it by 25 basis points last month," Desai told IANS.

Nair added: "Perhaps, the GST led disruption is likely to extent for one or two quarters and may continue to hurt some SMEs (small and medium-sized enterprises) going forward. However, the market continued to stay on the positive terrain due to better auto sales and encouraging manufacturing data for the month of August."

A key macro-economic data released during market hours on Friday revealed that the Nikkei India Manufacturing Purchasing Managers` Index (PMI) -- a composite indicator of manufacturing performance -- stood at 51.2 in August, up from the index reading of 47.9 reported in July -- signalling "a renewed improvement in the health of the sector".

On the global front, upbeat economic figures from major economies stimulated the bulls in the markets ahead of important US data that could determine the scale of upcoming rate hikes from the Federal Reserve, said D.K. Aggarwal, Chairman and Managing Director, SMC Investments and Advisors.

"Following jitters at the start of the week over North Korea`s firing of a missile over Japan, the mood improved to some extent in the later part of the week," Aggarwal told IANS.

"Back at home, as expected domestic market witnessed a volatile session ahead of derivative August series expiry. Also, it was seen that foreign portfolio investors (FPIs) were in selling mood during the month and worries about delay in corporate earnings recovery tempered investor optimism to some extent," he added.

Figures from the National Securities Depository (NSDL) revealed that FPIs divested equities worth Rs 14,706.68 crore, or $2.29 billion, during the month of August.

However, during August 28-September 1, FPIs invested in equities worth Rs 300.12 crore, or $46.99 million.

Provisional figures from the stock exchanges showed that foreign institutional investors (FIIs) sold stocks worth Rs 2,352.07 crore, while DIIs bought scrips worth Rs 3,399.8 crore during the week ended September 1.

On the currency front, the Indian rupee closed the week almost flat at 64.02-03 to a US dollar from its previous week`s close.