Markets jump on rate cut hopes; Infosys, DLF lead rally

The Indian equity markets closed higher on all-round bullish sentiment after inflation trended down cementing hopes of a rate cut in the coming RBI policy review.

The government’s decision to defer the implementation of GAAR to 2016 also boosted the mood in the market.

The Sensex closed at 19906.41, up 1.23 percent and the Nifty closed at 6024.05, up 1.20 percent.

[caption id=“attachment_587753” align=“alignleft” width=“380”]  India’s wholesale price index-based inflation decelerated in December to hit a 3-year low of 7.18 percent. Reuters[/caption]

India’s wholesale price index-based inflation decelerated in December to hit a 3-year low of 7.18 percent, lower than the RBI’s projection of 8 percent for the month, strengthening the case for a rate cut when the central bank meets to review its monetary policy this month-end.

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In comparison, a Reuters poll of economists had projected the figure at 7.4 percent. It is also lower than the November print of 7.24 percent. The fall in WPI inflation is in striking contrast with CPI inflation which rose to 10.56 percent.

On the policy front, giving a big relief to overseas investors, the government has postponed implementation of controversial GAAR provisions by two years to April 1, 2016.The government has also decided not to applyGAAR to foreign funds that are not taking any benefit from India’s various tax treaties with other nations.

Additionally, Nomura said that it expects the Sensex to touch 21,700 by the end of 2013. The investment bank says positives include potential rate cuts, easier domestic liquidity and reform momentum. But also said that risks include “a broken” capex cycle, weak government finances, and a poor external account.

Stocks in news

DLF closed up 8 percent after JP Morgan upgraded the stock. The investment bank said DLF stands to benefit from debt reduction and the launch of luxury projects in Gurgaon, a suburb of New Delhi.

ITC closed up 2 percent after Goldman Sachs said that a recent correction in cigarette maker ITC shares is overdone, offering a buying opportunity.

Infosysextended its gains to rise 3 percent. TCS rose2 percent ahead of its results today. Sentiment for IT stocks has improved after its better-than-expected earnings.

Muthoot Finance closed up 5 percent after the company’s strong Q3 earnings.

With inputs from PTI