Indices sway on higher liquidity inflows on RBI's 'operation twist'

Higher liquidity inflows on the back of the Reserve Bank of India’s (RBI) ‘operation twist’ along with Jharkhand Assembly election results will influence the Indian equity market movements during the truncated week ahead, experts said.

Additionally, investor sentiments will be swayed by derivatives expiry and rupee’s strength against the US dollar.

“Some volatility could be seen next week as traders roll over positions in the F&O segment from the near month December 2019 series to January 2020 series,” HDFC Securities’ Retail Research Head Deepak Jasani said.

“Legislative Assembly election results for Jharkhand will be declared on Dec.23, 2019. A setback for BJP could spoil sentiments mildly.” Besides, Edelweiss Professional Investor Research’s Chief Market Strategist Sahil Kapoor said RBI’s “operation twist” is likely to ease monetary policy further, which bodes well for the broader markets.

“The mid and small caps are likely to rise outperforming Nifty which has been long pending,” Kapoor said.

“I see that trend now beginning in the next few days and weeks. Commodity stocks, especially metals and mining remain attractive plays.” The Reserve Bank of India will simultaneously purchase and sell government securities under open market operations (OMOs) for Rs10,000 crore each today (Dec.23).

The operation is likened to the Federal Reserve’s ‘operational twist’ — which involved swapping short-term treasury securities for long-term government debts conducted in 2011-12.

Under its OMO operations, RBI will sell short-term securities worth Rs10,000 crore maturing next year and purchase long-term securities of an equal amount maturing in 2029.

The move is expected to improve both liquidity and bond yields.

“Near term momentum could continue on the back of strong liquidity flows and hopes of Budget stimulus to spur economic growth,” Motilal Oswal Financial Services’ Retail Research Head Siddhartha Khemka said.

However, Vinod Nair, Head of Research at Geojit Financial Services pointed out: “A short-term consolidation cannot be ruled out as investors may slide to a holiday mood and especially since we witnessed a solid rally during the last two weeks.” Moreover, the rupee’s movement against the US dollar will influence investors’ sentiments.

The Indian currency is expected to range from 71-71.50, next week from its previous close of 71.12.

According to Sajal Gupta, Head Forex and Rates, Edelweiss Securities: “RBI’s operation twist along with rupee intervention, shows the Reserve Bank’s preference for a weaker rupee and lower yields.” “This should limit rupee appreciation. Higher crude oil prices can also weaken rupee.” On technical charts the National Stock Exchange’s Nifty50 remains in an intermediate uptrend.

“Further, upsides are likely once the immediate resistance of 12,294 is taken out. Crucial supports to watch for resumption of weakness are at 12,191,” Jasani said.

The domestic stock markets will remain closed on Dec.25 on account of Christmas.

Meanwhile the benchmark indices Sensex and Nifty hit their fresh all-time highs last Wednesday. The S&P BSE Sensex rose 206 points to 41,558 while the Nifty50rallied by about 56 points to close at 12,221. Both Sensex, and Nifty hit a fresh record closing high.

Among the sectors, Nifty PSU Bank index finished as the top loser, falling 1.89 per cent. Nifty Media closed with a loss of 0.41 per cent; rest all settled in the green. Nifty Pharma, with a gain of 1.20 per cent, ended as the top gainer among the sectoral indices.

Broad-based buying across sectors lifted benchmark indices to fresh lifetime highs on Wednesday. Gains were supported by HDFC twins, ITC, Reliance Industries, Asian Paints, and Mahindra & Mahindra (M&M). However, profit-booking at State Bank of India (SBI), ICICI Bank, and Infosys trimmed gains marginally.

A string day for Dalal Street as bulls pushed benchmark indices to fresh record highs for the second day in a row. The S&P BSE Sensex rallied over 200 points to hit a fresh record high of 41,614, while the Nifty50 rose more than 50 points to hit a life high of 12,237.

Let’s look at the final tally on D-Street - the S&P BSE Sensex rose 206 points to 41,558 while the Nifty50 rallied by about 56 points to close at 12,221. Both Sensex, and Nifty hit fresh record closing highs. Sectorally, action was seen in metals, healthcare, realty and consumer discretionary while profit-taking was seen in the public sector, telecom and oil & gas index.

Agencies