RBI rate cut lights up Dalal Street, but will the rally continue?
The stock market ended the week on a strong note, driven by the Reserve Bank of India's surprise rate cut. On Friday, the RBI reduced the repo rate by 50 basis points, which was more than what the market had expected. This sudden move helped lift investor sentiment, pushing key indices Sensex and Nifty higher by nearly 1%.But as trading resumes on Monday, the big question on everyone's mind is whether the rally will continue or lose steam on Dalal Street. MARKET PERFORMANCE LAST WEEKThe Nifty gained 252 points during the week and closed slightly above the important 25,000 mark. The Sensex also climbed 738 points, finishing at 82,189. The Bank Nifty did even better, rising 1.5% to end at 56,578.40. It even touched a new all-time high of 56,695 during the week. This was the fourth week in a row that Bank Nifty posted gains.One of the biggest reasons behind this rally was the RBI's decision to cut the repo rate by 50 basis points to 5.5%, which was double the expected cut. The central bank also reduced the Cash Reserve Ratio (CRR) by 1%, bringing it down to 3%. This is the lowest it has been since April 2021.RBI also changed its policy stance from 'accommodative' to 'neutral', suggesting that it will now wait and watch before making further moves. According to market expert Puneet Singhania, Director at Master Trust Group, 'The RBI's rate cut and neutral stance are likely to support market momentum in the near term, especially in sectors that react positively to lower interest rates.'Singhania added that while the local factors like low inflation and decent GDP growth are positive, global concerns like new tariffs and international developments could lead to some volatility in the market.OUTLOOK FOR NIFTY AND BANK NIFTYThe Nifty ended the week with a strong bullish candle, closing above 25,000 after falling for two straight weeks. It is now trading above its key moving averages, which suggests the market could stay strong in the coming sessions. According to analysts, the index has good support around 24,700. If it falls below this, it could slip to 24,500. On the higher side, if the Nifty moves above 25,250 and stays there, it could rise further to 25,600.Bank Nifty also showed strength, ending the week with a gain of 1.49%. It has now broken out of a six-week consolidation period and is trading well above its short-term averages. Analysts say the key support level for Bank Nifty is around 56,100. If it breaks below that, the index could move towards 55,600. On the upside, it needs to cross 57,000 to continue its rally towards 57,500.FUND FLOW TRENDSThere has been a clear difference in the buying and selling patterns of foreign and domestic investors. Dr VK Vijayakumar, Chief Investment Strategist at Geojit Investments Limited, pointed out that while Foreign Institutional Investors (FIIs) sold stocks worth Rs 3,565 crore in early June, Domestic Institutional Investors (DIIs) were big buyers. 'DIIs bought shares worth Rs 25,510 crore during the same period, which more than covered the FII selling,' he said.He also noted that FIIs have been selling in the bond market too, mostly because the gap in interest rates between Indian and US bonds has become smaller. But overall, the RBI's actions have lifted market sentiment. 'India still looks strong when compared to the US and China, both of which are facing weaker growth. But the high valuation levels in the stock market could limit the space for a long rally,' he warned.SECTOR WATCH AND STRATEGYReal estate stocks were the top gainers last week, with the realty index jumping 9.5%. However, sectors like media and energy ended in the red. According to Singhania, Nifty continues to show strong technical signs, with no warning signals yet from major indicators.Looking ahead, Ajit Mishra, SVP of Research at Religare Broking, suggested a cautious but positive approach. 'The RBI's rate cut and its supportive tone are strong positives. We advise a 'buy on dips' strategy as long as the Nifty stays above 24,600. But investors should pick stocks carefully, especially in banking, auto, and real estate, which are likely to gain from the lower interest rate,' he said.Mishra also warned that sectors such as FMCG and IT may continue to face pressure due to rising input costs or global issues. He advised traders to stay alert and keep an eye on upcoming data and news from global markets.(Disclaimer: The views, opinions, recommendations, and suggestions expressed by experts/brokerages in this article are their own and do not reflect the views of the India Today Group. It is advisable to consult a qualified broker or financial advisor before making any actual investment or trading choices.)
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Time of India
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