Markets rally on rate cut hopes

Key share indices ended over 1 per cent higher on Tuesday led by rate sensitive shares as the sluggish April IIP data re-inforced market expectations that the central bank could cut key policy rates and also lower the cash reserve ratio to boost growth.

The 30-share Sensex ended higher by 195 points at 16,862 and the S&P CNX Nifty jumped 62 points to close at 5,116 levels.

"A near-zero reading on IIP, along with the S&P downgrade warning has raised hopes that the RBI will reduce interest rates to support growth. We believe that the May inflation data as well as the developments in Greece over the next few days will influence the RBI's decision to some extent. On the other hand, the rupee depreciation and the progress of monsoon may make the RBI wary as far as reducing interest rates is concerned," said Dipen Shah, Head (Fundamental Research), Kotak Securities.

In other global markets, European indices were trading flat, with investors nervous over reports of official preparations for a Greek exit from the euro zone and after details of the Spanish bank bailout plan renewed worries about the region's debt crisis. CAC, FTSE and DAX indices were up 0.5 per cent each.

The Asian markets closed the day in the red. Nikei, Hang Seng and Shanghai ended lower by 0.4 - 1 per cent each.

Back home, rate sensitive sector stocks witnessed buying interest on rate cut hopes. Maruti Suzuki, Tata Motors, Larsen & Toubro, State Bank of India, Mahindra & Mahindra, HDFC Bank, ICICI Bank, Hero MotoCorp, Bajaj Auto, BHEL and NTPC  from the rate sensitive pack were the top gainers among the Sensex stocks, up 1.3-3.5

per cent each.

On the other hand, Dr Reddy's Lab, Wipro, Tata Power, HUL, and Sun Pharma were among the notable laggards from the heayweight pockets.

Buying was visible across the board barring healthcare stocks. BSE realty index was the top gainer on the sectoral front, up 2 per cent or 33 points to close at 1,667 levels. Bankex, capital goods, auto, consumer durables, PSU, power and metal indices also ended higher by 1-1.9 per cent each in trades on Tuesday.

Godrej Properties was the top gainer from realty space, up 5.3 per cent to close at Rs 606. HDIL, Unitech, Indiabulls Real Estate, Prestige Estates and DLF also ended higher by 2-4 per cent each. From the banking space, Punjab National Bank, Canara Bank, Union Bank, IDBI Bank and Bank of india were the top gainers.

Shares of aviation companies such as Jet Airways, SpiceJet and Kingfisher Airlines ended higher by over 3 per cent in otherwise weak market on hopes that state-run oil marketing companies may cut aviation turbine fuel (ATF) prices on lower crude oil prices.

Godrej Industries dipped 2.4 per cent to Rs 239 extending its previous day's fall after the promoters decided to reduce their holdings in the company to 75 per cent from current 79 per cent through issue of equity shares.

The broader markets ended flat. The BSE mid-cap index ended higher by 37 points at 6,013 and the small-cap index jumped 18 points to close at 6,357 levels.

The overall breadth was neutral as 1,361 stocks advanced while 1,312 stocks declined.