Dalal Street is illuminated by the RBI rate cut, but will the rally last

The stock market closed last week on a high, largely thanks to the RBI’s surprise 50 basis point repo rate cut—double what markets had anticipated. This move, along with a 1% reduction in the Cash Reserve Ratio (CRR) to 3%, boosted investor confidence and pushed the Sensex and Nifty up by nearly 1%.

Market Highlights:

• The Nifty gained 252 points, crossing just above the crucial 25,000 level.

• The Sensex added 738 points to close at 82,189.

• Bank Nifty outperformed, rising 1.5% to 56,578.40, hitting a fresh all-time high of 56,695 during the week—marking its fourth consecutive week of gains.

RBI also shifted its policy stance from 'accommodative' to 'neutral,' signaling a pause to assess the impact of recent moves. According to Puneet Singhania from Master Trust Group, this neutral stance and the rate cut are likely to keep the market momentum going, especially in rate-sensitive sectors.

Market Outlook:

• Nifty’s bullish close above 25,000 after a two-week dip suggests strength. Analysts see strong support at 24,700; a dip below could take it down to 24,500. On the upside, breaking 25,250 could push it towards 25,600.

• Bank Nifty has broken out of a six-week consolidation and trades above key short-term averages. Support stands at 56,100, with a breakdown possibly leading to 55,600. A breakout above 57,000 may open doors to 57,500.

Fund Flows:

Domestic Institutional Investors (DIIs) have been major buyers, purchasing Rs 25,510 crore worth of shares in early June, overshadowing Foreign Institutional Investors (FIIs) who sold Rs 3,565 crore. FIIs are also pulling back from Indian bonds due to narrowing interest rate gaps with the US.

Dr. VK Vijayakumar of Geojit Investments highlights that India’s relative strength versus the US and China remains a positive, but the market’s high valuations may cap the rally’s duration.

Sector Trends & Strategy:

• Real estate led gains with the index soaring 9.5%, while media and energy lagged.

• Experts recommend a cautious yet optimistic stance: “buy on dips” is advised if Nifty stays above 24,600.

• Banking, auto, and real estate sectors are expected to benefit most from lower rates.

• FMCG and IT might face continued pressure from rising input costs and global headwinds.

Investors should stay alert to global developments and upcoming economic data as they could influence market volatility.