Mumbai: India’s key equity indices bounced back from Tuesday’s 28-month low to gain the most since August on Wednesday, snapping a five-day losing streak as investors were buoyed by rating agency Moody’s upgrade of the country’s long-term sovereign bonds, a recovery in the rupee, strong global cues and positive US economic data.
The rally gained steam towards the fag end of the session as market players who had sold stocks without owning them rushed to cover their positions by buying them back to minimize losses.
BSE’s benchmark Sensex jumped 510.13 points, or 3.36%, to close at 15,685.21 as all except two of its 30 stocks made gains. The broader Nifty of the National Stock Exchange surged 3.28% to 4,693.15, aided by gains in 46 of the 50 stocks in the index.
“Markets were oversold and the rally was because of short covering following positive global cues,” said Suresh Parmar, head of institutional equities at KJMC Capital Markets.
Sensex at closing
Most equity indices across the globe ended the day with gains after the Dow Jones Industrial Average gained close to 3% overnight on better-than-expected US November home sales and the European Central Bank agreed to lend more money to banks in the region than what most economists had expected.
While the rupee continued its recovery against the US dollar, Moody’s raised its view on the Indian government’s long-term bonds from “speculative” to “investment” grade. This fuelled a rally in bank stocks. The BSE Bankex rose close to 5%, the biggest gain among sectoral indices.
The rupee ended at 52.485 against the dollar, recovering from an all-time low of 53.72 recorded on 14 December. A depreciating rupee had been adding to investor worries in a nation that depends on imports to meet a majority of its energy needs.
Markets have snapped a five-day losing streak and rebounded dramatically. Mint’s Krishna Merchant tells us what the analysts are saying
“I don’t care about equities as much as I care about the rupee. The rupee seems to have bottomed out and we are moderately positive on equities,” said Shankar Sharma of First Global Stock Broking, a market expert known for his bearish outlook when the markets were at record highs and all seemed to be going well.
There are not many takers for this view. Nirmal Jain, chairman of India Infoline Ltd, thinks there is still a 30-35% probability that the indices will drop to lower levels.
“We are cautious. There will be corrective rallies, but still things are dim. I am still bearish. The rupee can face further pressure until the central bank takes some strong measures and thus has a 5-6% downside risk. Equities may fall 10-15% more,” he said.
The Sensex and the Nifty have fallen 23.52% and 23.5%, respectively, during the year so far, technically qualifying as bear markets, and are among the worst-performing indices among emerging markets.
Foreign institutional investors (FIIs), the drivers of Indian markets, have sold equity worth a net $455.7 million in the year so far. On Wednesday, they were net sellers of stocks worth a net Rs 144.23 crore, while domestic institutional investors sold stocks worth a net Rs 133.26 crore, according to data available on the NSE website.
While subscribers to fundamental analysis have diverging views ranging from conservatively positive to bearish, chartists maintain that the larger trend continues to be downward.
“Index (Nifty) holding above 4,650 (points) is viewed positively. However, as the trend is downward, positional traders may look to add short positions at resistance levels... More than 80% of NSE-500 stocks are trading below 200-day simple moving average, which is a sign of long-term bearishness,” Kotak Securities’ head of technical research, Shrikant Chouhan, said in a note.
Market breadth was positive on BSE, with 1,658 stocks advancing against 1,097 declines.