Mumbai: The Sensex, the benchmark index of the Bombay Stock Exchange (BSE), gained 1,139.92 points on Friday, the most ever on a single day, to end the week on a positive note after beginning it with a 1,408-point fall on Monday, again the most ever, but analysts are still not willing to wager that the worst is behind the Indian stock market.
This, despite the fact that foreign institutional investors (FIIs) have started buying equities in small quantities. According to provisional data provided by BSE, foreign funds were net buyers of Rs208 crore worth of Indian securities in the cash market on Friday. Since the beginning of January this year, foreign funds have bought more than Rs200 crore of equities only on one day—on 8 January, the day the Sensex closed at its lifetime high of 20,873.33. FIIs have been net sellers for seven trading sessions in a row and since the beginning of the year they have sold close to Rs3,000 crore worth of stocks after buying a record $17.2 billion (Rs67,768 crore today) worth of stocks in 2007.
FORWARD GEAR (Graphic)
Analysts attribute this week’s fall, and the recent behaviour of FIIs, to India’s downgrade by JPMorgan Securities (Asia Pacific) Ltd and Credit Suisse Securities (India) Pvt. Ltd. Both firms downgraded India to underweight, citing the high valuations of stocks.
The Sensex closed at 18,361.66 on Friday, reflecting a gain of almost 10% in four sessions between 22-25 January, but that hasn’t made analysts bullish about the market.
Christopher Wood, managing director and equity strategist of CLSA Asia-Pacific, one of the largest brokerages in the region, is highly optimistic about the Indian market, but he is among the minority. In his latest report, released on Thursday, Wood reiterated that his favourite structural story in Asia remains India. According to him, India is perhaps the only country which can withstand the reverberations spreading globally from the meltdown of structured finance.
Other fund managers and heads of brokerages are not as positive as Wood in their analysis of Indian markets. “It’s too early to judge whether all the pain is over,” said Sameer Narayan, who helps manage more than $917 million worth of equity assets as vice-president (equities) at ABN Amro Asset Management (India) Ltd. “There are a host of important events waiting in the wings—the third quarter results of many large firms, the month-end US Fed meet and the credit policy review of the Indian central bank. The long-term India story is definitely strong, but one needs to be sensible on the price that one pays (for stocks),” he added.
According to Vineet Bhatnagar, chief executive of MF Global Sify Securities India Pvt. Ltd, an arm of Man Group Plc., one of the largest brokerages for derivatives trade, the Indian situation is “complex”. He sees a dichotomy in Indian markets.
“India’s long-term growth story makes it fundamentally strong. On the economic front, it is decoupled from the world. However, it is not the same with equity markets. Globally, markets are becoming more integrated. So, there is no escape from a global equity market contagion,” he said.
India and Hong Kong, laggards on Thursday when other markets were rising, were among the biggest gainers on Friday. While the Sensex rose 6.62%, Hong Kong’s Hang Seng index gained 6.7%. The broader 50-stock Nifty index of India’s National Stock Exchange (NSE) also gained 6.95%, or 349.90 points, to 5,383.35.
Among other markets, Japan’s Nikkei index gained 4.1%, Singapore added 3.59% and South Korea’s Kospi was up 1.7%. The Chinese market, however, was subdued and its benchmark index gained 0.9%, the least in Asia.
The Dow Jones Industrial Average was trading at 12,397.39 at 8.45pm India time after gaining 108.44 points or 0.9% on Thursday to close at 12,378.61.
After the surprise 75 basis points cut in the US Fed rate and a $150 billion economic stimulus package announced by that country’s government to avert a recession in the world’s largest economy, brokerages are now expecting yet another rate cut by the Fed when its policy making body Federal Open Markets Committee meets next week. Ahead of that, domestic brokerages also expect the Indian central bank to cut its policy rate on 29 January. These factors have helped change the sentiment of the Indian market.
(Ashwin Ramarathinam contributed to this story.)