Buying activity intensified during the final hour of trade today. The BSE-Sensex ended higher by about 222 points or 0.9% today while the NSE-Nifty closed with gains of about 73 points or 1%. Barring stocks from the FMCG and information technology spaces, gains were seen across the board. Leading the pack of gainers, banking and consumer durables sector stocks were the most in demand today. Midcap and smallcap stocks were preferred all the more as the BSE-Midcap and BSE-Smallcap indices closed higher by over 2% each.
Stock markets in other parts of Asia ended the day on a firm note with Japan and Chaina up by 0.6% 0.2% respectively. The rupee was trading at Rs 60.22 to the dollar at the time of writing.
Auto stocks ended the day on a firm note led by Ashok Leyland and Mahindra & Mahindra. After a two year back to back decline in volumes, sales of heavy commercial vehicles (HCVs) rose by 11% during the quarter ended June 2014. HCV volumes fell by 6% YoY, 25% YoY and 15% YoY in the quarters ended December 2013, September 2013 and June 2013 respectively. As can be seen from this, there seems to be a bottoming out trend. Given that HCVs are considered to be the barometer of economic health, this does point towards improvement. However, amongst the many factors that led to higher volumes has been the 12% to 15% increase in freight rates over the past six months as well as the extension in excise concessions. To add to this is the expected increase in infra and mining activities, which would firm up the demand going forward.
Banking stocks ended the day on a firm note led by Federal Bank, State Bank of India and Bank of Baroda. Gains in India's largest bank SBI were seemingly on the back of the bank reducing the rates on short term deposits. As per the Hindu Business Line, the bank cut rates on short-term fixed deposits up to 179 days by 0.5% to 7%. Further, interest rates on term deposits (of Rs 1 crore and above) have been reduced by 0.25% to 6.25% (for term deposits between 7 to 60 days) and to 7% for deposits in excess of 61 days but less than one year. Given the uncertain macros and the bleak likelihood of a rate cut despite fall in CPI, margin pressures stand imminent for SBI going forward. Moreover asset-liability mismatch concerns loom too. Hence, a deposit rate reduction stands justified. We believe the other banks might follow suit.