Shrugging off last week’s worries of escalating tensions between India and Pakistan following the surgical strike carried out against terror targets, India’s stock markets surged near 1.5% ahead of the bi-monthly monetary policy announcement on Tuesday. Gains were led by automobile stocks, which rallied on strong sales growth in September.
Sentiments also got a boost from gains across Asian markets, as worries over health of European banks eased and Japanese shares climbed as yen weakened.
The benchmark BSE Sensex jumped 377 points or 1.4% to close Monday’s trading at 28,243.29 and the NSE Nifty50 index closed up 127 points or 1.5% at 8,738.10.
“There is some expectation of RBI reducing interest rates. Also the geo-political worries have reduced, while sporadic incidents continue, this is unlikely to escalate into a war-like situation, which has also calmed market nerves,” said Vinod Nair, head of research at Geojit BNP Paribas.
The Reserve Bank of India will announce its bi-monthly monetary policy on Tuesday. This will be the first policy under Governor Urjit Patel, and the first time that a monetary policy committee will be deciding interest rates.
Market remains divided whether the central bank will reduce interest rates on Tuesday. Around 60% of the 44 analysts polled by Reuters expect RBI to leave rates unchanged, while the rest expect a 25 basis points reduction.
“The sharp fall in food prices raises more scope for a fall in inflation in coming months, building ground for the RBI to reduce rates further. However, the monetary policy committee may prefer to wait for the RBI’s December policy meeting for better clarity over domestic data; it could also wait for the result of the US election in November, as well as clarity on the US rate trajectory,” said Bansi Madhavani, analyst at India Ratings and Research.
Most Asian markets ended higher on Monday, with Japan’s Nikkei Stock Average ending up 0.9% and Hong Kong’s Hang Seng closing 1.2% higher. In Europe, the London’s FTSE 100 index rose 1.2% and France’s CAC 40 was up 0.3%.
On the Sensex, Maruti Suzuki was the biggest gainer, up 3.7% after the country’s largest car maker reported a 31% rise in vehicle sales last month. Among other stocks, Hero MotoCorp rose 3.2%, Mahindra & Mahindra was up 2.6% and Bajaj Auto gained 1.5%.
“Wholesale numbers of four-wheelers and commercial vehicles were higher than expectations. Maruti’s domestic volumes were 14% higher than estimates due to inventory buildup for the festive season,” said Ashwin Shetty of Ambit Capital.
Adani Ports, Power Grid, Larsen & Toubro, Asian Paints, Tata Steel and HDFC were among the other top gainers.
Mid and small cap stocks continued to rally faster than the large caps. Both the BSE Mid-Cap and Small-Cap indices surged 2.4% and 2.7% respectively.