Sensex ends losing streak as RBI stays dovish

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Benchmarks emerged from their three-day losing streak on Friday as investors reacted positively to the central bank’s continued efforts to support growth and its commitment to managing inflation. Steady inflows into equity funds also encouraged investors. The market shrugged off concerns over the central bank’s weaker GDP growth forecast for FY23.

While the Sensex jumped 412.23 points or 0.70% to settle at 59,447.18, the wider Nifty50 added 144.80 points or 0.82% to end the session at 17,784.35 . Reliance Industries – the largest company by market capitalization – boosted gains in both benchmarks with a rise of around 2%. With Friday’s gains, the Sensex has jumped nearly 13% over the past month, with RIL, HDFC twins and ICICI Bank contributing 46.3% to the index’s gains.

Additionally, the market fear gauge, India VIX, cooled by 7% to below 18, indicating stability in the market. Foreign and domestic institutional investors sold shares on Friday. While REITs sold $75.8 million worth of shares, local investors sold $2.2 million worth of shares, preliminary trading data showed.

“Clever bulls rallied at lower levels as sentiment was mostly supported by dovish RBI. Encouraging sentiments were also reported that equity mutual funds attracted a net sum of Rs 28,463 crore in March, making it the 13th consecutive monthly net inflow, despite a volatile stock market environment and amid the continuing sale of REITs,” said Prashanth Tapse, Vice President (Research) at Mehta Equities. According to Tapse, the next goal post for Nifty50 is seen at the 18,000 mark, and then all eyes will be at its all-time high of 18,605.

However, the benchmark 10-year bond yield climbed 21 basis points (bps) as the RBI restored the Liquidity Adjustment Facility (LAF) corridor to 50bp, the stance that prevailed before the pandemic. The yield closed at 7.12% on Friday, its highest level since May 30, 2019.

“Domestic markets welcomed RBI’s decision to maintain a dovish stance during its policy meeting on Friday. While RBI kept the benchmark interest rate unchanged at 4%, it lowered the growth forecast for the fiscal year 23 to 7.2% from 7.8% earlier and raised the inflation estimate to 5.7% from 4.5%,” said Siddhartha Khemka, head of retail research , Motilal Oswal Financial Services.

Sector-wise, with the exception of Nifty IT, all other sectors ended positive on Friday. Broader markets also continued to outperform front-line indices, with the BSE mid-cap and small-cap indexes jumping nearly 1% each.

“The fact that the broader markets are rallying recently is mostly a catch-up game after the sharp correction that has taken place in the space over the past five to six months. Additionally, valuations in the mid-cap space are now relatively attractive relative to large caps,” Aishvarya Dadheech, fund manager at Ambit Asset Management, told FE on Friday.

Overall, of the 3,509 stocks traded on the BSE, 2,245 rose, while 1,143 closed lower. The remaining 121 stocks closed at the same level as the previous day.

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