RBI's second round of Operation Twist, global cues fuel market rally

The benchmark indices on Friday closed about 1 per cent higher, with banks leading the show fuelled by the Reserve Bank of India’s (RBI’s) plans to initiate the second round of Operation Twist. Mid-cap stocks posted strong gains amid talk of the Securities and Exchange Board of India (Sebi) relaxing norms to widen the investable universe for mutual funds (MFs).

Global cues also contributed to the positive investor sentiment. “Liquidity in global markets and optimism around a US-China trade deal drove the indices to fresh highs during the series,” said Siddharth Khemka, head of research (retail), Motilal Oswal Financial Services.

The 30-share Sensex ended 411.38 points higher at 41,575.14, while the Nifty closed 119.25 points up at 12,245.80. Among the Sensex stocks, Axis Bank was the biggest gainer as it closed 3.3 per cent higher. Other gainers in the banking pack were State Bank of India (2.2 per cent) and ICICI Bank (2 per cent). The BSE Bankex ended 1.2 per cent higher.

“Operation Twist is expected to lead to higher treasury profits for banks as the 10-year bond yields are likely to come down,” said Deepak Jasani, head of retail research at HDFC Securities.

On Friday, the yield on the 10-year G-Secs slipped to a one-month low of 6.1 per cent. Foreign institutional investors (FIIs) bought Rs 81 crore worth of equity shares on Friday, while domestic institutional investors (DIIs) bought Rs 125 crore worth of shares.

RBI's second round of Operation Twist, global cues fuel market rallyThe broader markets also gained. The top mid-cap gainers included ICICI Securities (18 per cent), Page Industries (5 per cent), Mangalore Refinery (5 per cent), Motilal Oswal Financial Securities (5 per cent) and Reliance Nippon AMC (4 per cent).

According to market sources, the gains seen by mid-cap stocks can also be attributed to the talk that Sebi could rejig the MF scheme categorisation norms and widen the investable universe of mid-caps. Experts say these could be early signs of a more broad-based rally. “We could see the frontline indices gaining in the range of 7-8 per cent with broader markets outperforming,” G Chokkalingam, Equinomics Research & Advisory Services MD, said.

However, some brokerages remain doubtful of a broader market rally unless retail investor participation via MFs sees a recovery and uncertainty around growth goes away.