Why Sensex, Nifty Are Up After Four Days of Selloff

The BSE Sensex saw its first big up move in five sessions on Thursday as hopes of a rate cut fueled buying interest in banking and auto stocks. The Sensex jumped over 250 points or nearly 1 per cent, while the broader Nifty took out the key 8,400 levels in morning session.

Traders are betting on the possibility of a rate cut in September after retail inflation cooled to a record-low of 3.78 per cent in July, while industrial production picked-up to a four-month high of 3.8 per cent in June.

"The number is a big downside surprise," said A. Prasanna, an economist at ICICI Securities Primary Dealership. "This increases chances of RBI cutting interest rate one more time in this fiscal year ending March."

The Bank Nifty - the index of big banks - surged 1.6 per cent in morning trade; other rate sensitive stocks -- realty and auto -- also witnessed buying interest.

Wednesday's economic data came as a relief to investors, left stranded because of the logjam in Parliament. The political imbroglio has resulted in a setback to the government's reform agenda and unnerved foreign investors, analysts say.

In another positive development, the rupee pulled back from 2-year lows against the dollar tracking the relative calm in global markets. The currency hit a high of 64.63 per dollar against yesterday's intraday low of 64.95 per dollar.

The rupee has been weakening sharply because of the devaluation in yuan earlier this week, which has led to selling in most emerging market currencies. 

Analysts said investors should hold on to their positions as things have started looking up after four days of selloff.

"Let's not be against the current and short the markets," said Gaurav Bissa of LKP Securities.

As of 09.35 a.m., the Sensex traded 244 points higher at 27,756, while the Nifty gained 71 points to 8,421.