BackSensex rises 479 points; May outlook hazy
FIIs on the sidelines due to weak corporate earnings and the ongoing tax row with the government
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Mumbai: Benchmark equity indices rebounded on the first trading session of May on Monday, but the outlook for the remainder of the month looks hazy, with foreign institutional investors (FIIs) staying on the sidelines because of weak corporate earnings and the ongoing tax row with the government.
The 30-share BSE Sensex surged 1.77% or 479.28 points to 27,490.59 points, while the National Stock Exchange’s (NSE) 50-share Nifty climbed 1.84% or 150.45 points to close at 8,331.95 points. It was the best performance by the indices since 30 March and 27 February, respectively.
As per provisional data from the NSE, FIIs bought a net of ₹ 60.53 crore of Indian shares; domestic institutional investors (DIIs) were net buyers of ₹ 146.80 crore in local equities on Monday. “Existence of crucial (technical) support in the benchmark and oversold positions in index majors were the key triggers for today’s rebound," said Jayant Manglik, president, retail distribution, Religare Securities Ltd.
Besides the technical rebound, buying sentiment was supported by company data showing auto sales expanded at a brisk pace in April helped by a low base effect and relatively low inventories at dealers’ showrooms. BSE Auto index rose 1.6%, while Bajaj Auto Ltd and Mahindra & Mahindra Ltd rose 7.4% and 4.7% respectively.
“Buying in auto space supported the sentiments with most of the companies releasing better-than-expected monthly sales data for April. There was broad-based buying witnessed in the markets and apart from the blue chips, the broader markets too equally participated in the rally," added Manglik.
Sensex shed 4.8% and 3.4% in March and April, respectively, giving some investors the opportunity to buy in or raise allocations at more reasonable valuations.
Christopher Wood, managing director of CLSA, an Asia-focused equity brokerage and investment group, said in a note late on Friday that its weighting on India and Vietnam will rise by one percentage point each in its Asia Pacific ex-Japan relative-return portfolio this week.
Wood said most fund managers started the quarter in April significantly overweight on India and were looking for reasons to sell India stocks considering their under-performance compared to the Chinese markets. China’s benchmark the Shanghai index rose 18.5% in April.
“It is, therefore, no surprise to find investors looking for reasons to sell India and, as discussed here last week, the evidence is there in terms of a continuing lack of evidence of a pickup in the investment cycle," Wood said in the note.
“There is also the issue of the slowdown in the rural economy which is no longer benefiting from the former Congress government’s aggressive food price support schemes," added Wood.
The combination of macro-economic worries ranging from the weakness in investments to the prediction of below normal rainfall could put a dampener on foreign inflows.
FIIs have bought $7.7 billion in stocks so far this year. But they have sold in 10 out of the 11 sessions ending 29 April. Tax demands slapped on foreign portfolio investors on capital gains earned by them is a major concern for overseas investors, some of whom have challenged the tax demands in court.
“When you are so dependent on FIIs, and if they want to opt out, ‘sell in May and go away’, could be true this month," said market analyst Ambareesh Baliga.
According to Baliga, Prime Minister Narendra Modi’s one-year report card is also due soon, and it may not be impressive. “There is nothing positive to go for the market. At the same time, the pace of decline will be slower. Pockets will underperform badly—the stocks which do not have fundamentals supporting them could correct a lot. Also, it is also a time to start building quality in the portfolio."
Aditya Birla Nuvo Ltd gained 12.7%, while Pantaloons Fashion and Retail Ltd was up 20% to its daily limit after the Aditya Birla Group announced it will consolidate all its branded apparel businesses into Pantaloons Fashion and Retail. Future Retail Ltd gained 12.06% to close at ₹ 129.65 per share.
State-run explorer Oil and Natural Gas Corporation rallied the most among Sensex stocks and closed 7.6% higher, while drug maker Cipla Ltd advanced 5.8%.
Only three of 30 Sensex stocks closed in the red.
BSE Oil & Gas index gained the most and closed 3.5% higher, followed by BSE Realty index and BSE Healthcare index, which climbed 2.5% and 2.4%, respectively.
Market breadth was positive, with gainers outnumbering losers in a ratio of 2.3:1 on the BSE.
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