Markets ignore rupee slide, rally on rumours of a CRR cut

Even though the Sensex finally snapped its three-day losing streak, the markets today witnessed a lacklusture session. It was only in the last half hour of trade that the key benchmark indices rallied and closed above psychological levels. The BSE sensex ended the day at 16,002.51, up 132 points, while the Nifty ended up 0.76 percent at 4800.60

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What was the reason for that late market rally? Firstpost Investing Editor Shishir Asthana explains that the market rally was primarily led by banking counters, which suddenly surged at around 3 pm on rumours of a possible cut in the credit reserve ratio (CRR).

Even though RBI officials had last week hinted that a CRR cut is unlikely, with the advanced tax issue coming up on 15 December and a huge shortage of liquidity in the money market, the credit default swap has shot up, indicating at a CRR cut.

ICICI Bank, the country’s largest private sector lender, dropped 0.1 percent and Axis Bank fell 1.1 percent after brokerage Macquarie said off-balance sheet activities have become a source of worry for Indian banks.

Meanwhile, energy major Reliance Industries, which has the heaviest weight on the main index, rebounded 2 percent and led the gains. The stock, however, is down 29.8 percent this year because of falling gas output from its fields off India’s east coast.

Buying in banks, FMCG, metals, auto, power and pharma stocks led the short covering rally in late trade.

But today’s market rise is a tad bit surprising as the rupee fell to an all-time low of 53.52 to the dollar, before recovering slightly. Moreover, the rise in Sensex comes a day after dismal IIP numbers. Hence, it seems as though the market has already factored in all the negatives on both the domestic and global fronts.

Among the gainers today , metal stocks have gained on short covering, whereas among the losers retail stocks have taken a beating due to the flip flop over FDI in retail. It seems there is no hope for these companies as they are all in a working capital tangle.

Apollo Hospitals, Amtex Auto, Glenmark and Titan are among the other losers.

For more on the market’s performance, listen to our market wrap of the day below: