Mumbai: Indian markets rose Wednesday, but foreign investors still sold more stocks than they bought and another foreign finance firm downgraded India citing valuations that cannot be justified.
Riding on improved global sentiment after the US Federal Reserve’s 75 basis points rate cut, India’s bellwether stock index Sensex rebounded strongly on Wednesday, ending its seven-day, 4,097.51 points, or 19.67%, losing streak, but brokerages, particularly foreign ones, are still not convinced that bulls are back on the Dalal Street.
The Sensex gained a record 1,267 points before closing at 17,594.07, adding 864.13 points, or 5.17%, to Tuesday’s close. However, going by provisional data from the Bombay Stock Exchange, foreign institutional investors (FIIs) were net sellers of equities to the tune of $766 million (Rs3,021.54 crore) in the cash market on Wednesday.
Strong Recovery (Graphic)
Top 10 Leaps (Graphic)
This means foreign investors, the main drivers of the Indian market, are still selling stocks to tide over their liquidity crunch. In 2007, FIIs bought a record $17.2 billion worth of Indian stocks. According to Bloomberg data, till 22 January, FIIs were net sellers of equities worth more than $2 billion.
Meanwhile, Credit Suisse Securities (India) Pvt. Ltd has joined JP Morgan Securities in downgrading India. In a 23 January report, Credit Suisse’s analysts Nilesh Jasani and Arya Sen said Indian stocks are overvalued and shifted India to underweight in their Asia portfolio.
“Our Sensex target for December 2008 is 16,500. However, the house view is that the valuations cannot be fully justified even at 13,000 levels,” said Jasani, head of equity research at Credit Suisse Securities.
On Monday, Adrian Mowat, the chief equity strategist of JP Morgan Securities in Asia, downgraded India, and according to Sunil Garg, head of Asian equity research at the firm, this was because of the “high valuations of Indian stocks.”
Both JP Morgan Securities (Asia Pac) Ltd, an arm of US-based JP Morgan Chase Bank NA and Credit Suisse Securities (India) Pvt. Ltd, an arm of Swiss-bank Credit Suisse, are highly underweight on India, even after the Sensex lost heavily since 10 January when the index hit its lifetime high.
However, all foreign firms are not speaking the same language. Deutsche Bank AG’s Hong Kong-based equity strategist Pratik Gupta said long term investors should capitalize on this sharp correction and that the Sensex’s current valuations are “attractive”.
Most of the domestic funds, too, do not share Credit Suisse’s view on Indian markets. “There is renewed confidence in the market,” said A. Balasubramanian, who manages more than $3 billion worth Indian equities as chief investment officer at Birla Sunlife AMC. “Outstanding positions have been squared off. With the Fed rate cut and the liquidity sucked by Reliance Power IPO expected back in the market soon, Sensex could gain,” he added.
Provisional data from BSE shows that domestic institutions were net buyers of equities worth Rs1,291 crore on Wednesday. Since the beginning of the year, they have bought equities worth Rs11,469 crore.
Among Asian markets, Hong Kong’s Hang Seng index vaulted 10.72%, its biggest single-day gain in 10 years, to 24,090.17, adding 2,332.54 points. The Indonesian benchmark index was the second biggest gainer, up about 8%. The Chinese index gained 3.14%, while Singapore’s Straits Times index gained 4.08%. Japan’s Nikkei added 2.04%.
However, the Asian stocks rally did not extend to Europe, where early gains were pared after Jean-Claude Trichet, president of European Central Bank, remarked on the need to check inflation and ruled out an immediate cut in interest rates. The UK’s FTSE index fell 3.44%, while Germany’s DAX fell 4.81% at 9pm India time.
Earlier on Tuesday, the US benchmark index Dow Jones Industrial Average also staged a strong bounce back, recouping three-fourth of its losses to close at 11,971.19, with a modest loss of 128.11 points. On Wednesday, the Dow was trading at 11,852.02, at 9.20pm India time, down 111.72 points.
On Wednesday, turnover on BSE increased from Tuesday’s Rs6,861 crore to Rs7,099 crore. And on the National Stock Exchange, volumes in the futures and options segment declined from Tuesday’s Rs44,307.58 crore to Rs36,073 crore.
However, the rally on Indian stocks was not broadbased. While all 30 stocks in the Sensex gained, in the overall market, there were more losers, at 1,401, than gainers (1,302).
Still, analysts say investors are no longer panicking. “The correction was imminent. However, it was the pace and magnitude which bought sudden fear and panic among investors,” said Deepak Lalwani, a director at London-based brokerage Astaire and Partners.
(Ashwin Ramarathinam contributed to this story.)