Bulls in charge as Sensex spurts 450 points

Equities continued to rally for the second consecutive day on Wednesday with the new regulatory capital classification defined by the Reserve Bank of India on Tuesday to meet the globally acceptable Basel -III norms providing the fresh trigger.

PSU bank stocks were major gainers with the Nifty PSU Bank Index opening with a massive gap-up of 222.80. The index closed with a gain of 207 points, or 9.90%, at 2297.50.

Following the government bank stock rally, Bank Nifty too gained 4.71%, or 679 points, at the day's close of 15,092.45, while Nifty 50 was 2.03%, or 146.55 points, up at 7368.85 by the end of the day.

The BSE Sensex closed 463.30 points, or 1.95%, higher at 24242.98. In the last two trading sessions, both the indices, Sensex and Nifty gained 1241 and 382 points respectively leading to market speculation that RBI would cut rates and bank stocks would do well post the RBI initiative.

"No doubt the revaluation of reserves from banks property revaluation would boost the Tier-I capital of banks, they are still hit with non-performing assets that will reflect in the coming quarters," said a senior banker at a foreign bank.

"The classification norms are directed towards a healthier balance sheet, and with the government announcing Rs 25,000 crore support towards recapitalisation, a similar amount can be expected through the regulatory capital norms of the RBI, especially PSU banks. But the core argument of profitability remains an issue," he said.

Most dealers said the markets have rallied on account of short-covering and recoveries of stressed assets remains a concern.

"The markets were short in anticipation that the government's Budget (on Monday) would hike taxes. Coincidentally, the selling in the domestic markets was in line with the global bearish sentiment and stocks have been hammered down as though there's no tomorrow," said Raamdeo Agrawal, joint managing director at Motilal Oswal Financial Services.

"These shorts are now getting covered and such a volatility is not good for the market," he added.

Most market participants echoed similar views and felt the two-day consecutive rally is losing steam as global environment remained a concern.

Foreign institutional investors (FIIs) were net buyers of the equities in the cash segment of Rs 1,437.50 crore on Tuesday while domestic institutional investors were net sellers at Rs 594 crore.

"FIIs are pulling out of the emerging economies as crude, metals, power are all pointing south adding to bank NPAs globally," said Alex Mathews, head of research at Geojit BNP Paribas.

The overall sentiment is of weakness and there is no opportunity for the markets to go beyond 7500, he said.

"The target for the week has been hit for the relief rally we are witnessing currently," said Vijay Singhania, founder, director at Trade Smart Online. The trend will be known after this week, as bears were likely to come back, he said.

Of the 50 stocks on Nifty, 40 were gainers and 10 were losers. Major gainers were SBI by 12.6% at Rs 182.40, ICICI Bank by 7.59% (Rs 220.50), PNB by 7.54% (Rs 79.20), Hindalco by 7.33% (Rs 75.40) and Bank of Baroda by 6.43% (Rs 144.80).

Major losers were Mahindra & Mahindra by 5.29% (1201), Sun Pharma 1.96% (851.40), ITC 1.8% (319.50), Coal India 1.75% (Rs 312.55) and BPCL 1.22% (784.05).