China rate cut, US jobs data lift markets; Sensex ends 401 points higher

MUMBAI: The interest rate cut announced by China’s central bank and strong US employment data, which triggered a rally in the global stock markets, led key Indian stock indices to a second straight day of gains on Monday as rate-sensitive banking, auto and metal shares rose. The government’s attempts to take the sting out of the retrospective tax on foreign portfolio investors and hopes of a rate cut by the Reserve Bank of India, based on the likelihood of a normal monsoon predicted by one of the country’s weather forecasting agencies and falling crude prices further boosted investor sentiment.

Some participants were cautious after the European markets edged lower as investors awaited the outcome of the Eurogroup finance ministers meeting on the Greek debt issue later on Monday.

The S&P BSE Sensex rose 401.91 points, or 1.48%, to close at 27,507.30 on Monday. The benchmark index has rallied by 900 points in the past two trading sessions. The CNX Nifty on the National Stock Exchange gained 133.75 points, or 1.63%, to 8,325.25, above its crucial 200-day moving average. The BSE Midcap index surged 2.1% and the BSE Smallcap index rallied 1.2%.

"China’s interest cut and US employment figures helped sentiments of traders who were looking for cues to carry forward Friday’s short covering," said Devang Mehta, senior vice president and head-equity advisory at Anand Rathi Financial Services. "The buying can also be attributed to stock valuations, which have become very cheap post the recent correction."

Foreign institutional investors who were in selling mode since mid-April turned buyers on Monday and bought shares worth a net Rs 170 crore, according to provisional exchange data. Domestic institutional investors purchased shares worth over Rs 328 crore.

Interest rate-sensitive stocks were the biggest gainers on the Sensex as investors bet the RBI would lower rates at the next policy meeting scheduled in June on the likelihood of a normal monsoon and easing crude prices. Shares of State Bank of India surged 5.44% to Rs 276.05, while Hero MotoCorp rallied 3.59% to Rs 2384.20.

"Even though markets have already run up in anticipation of rate cuts, the impact of rate cuts will take place with a lag. We expect the impact of lending rate cuts will take 3-6 months and thus boost growth in the second half of FY16," said Jyotivardhan Jaipuria, head of research at Bank of America Merrill Lynch. Consumer inflation data for April are expected to be released on Tuesday.

Analysts are forecasting inflation would have eased to 4.9% in April from 5.17% in March. Metal stocks rallied on hopes of a pick-up in demand after China, the world’s largest consumer of commodities, announced an interest rate cut for the third time in six months on Sunday to bolster its flagging economy. Vedanta gained 5.34% to Rs 229.85 and Tata Steel rose 2.91% to Rs 376.85.

"Investors do acknowledge that India is a better emerging market story over the medium term. With valuations now looking attractive, buying interest should be round the corner. One should buy on dips," said Rakesh Arora, head of research at Macquarie.

The rupee, which appreciated further by 8 paise to end at 63.85 against the US dollar, and reports of the monsoon likely to hit Kerala on its usual date of June 1 boosted trader sentiments.

Brent crude prices eased from $65.49 a barrel to an intraday low of $64.47 a barrel on Monday.