IT, pharma stocks lead rally as Sensex, Nifty hit new all-time highs
Benchmark indices closed at record highs on Monday on continued liquidity support, amid chaos caused by a technical glitch that halted trading at the National Stock Exchange (NSE) for three hours.
The BSE’s Sensex closed up 355.01 points, or 1.13%, at 31,715.64 points, and the Nifty was up 105.25 points, or 1.1%, to end at 9,771.05.
The NSE, which handles almost twice the stock volume of older but smaller rival BSE, halted trading because of a technical snag. NSE price quotes in equity were not updating and orders were not going through in the early hours of trading. To maintain price parity between equity and derivatives prices, the exchange decided to shut down the cash and futures and options (F&O) segments.
Liquidity support propelled both key indices higher, said Mayuresh Joshi, fund manager, Angel Broking Ltd. So far in 2017, foreign institutional investors (FIIs) have invested $8.24 billion and domestic investors Rs24,596.86 crore in Indian stock markets. On Monday, domestic institutional investors (DIIs) bought Rs894.57 crore in equities while FIIs pumped in Rs102.27 crore, according to NSE data.
“After the technical delay in NSE, the broad market rose to new heights supported by IT and pharma stocks, which rose on the heels of positive US jobs data,” said Vinod Nair, head of research at Geojit Financial Services. “On the other hand, investors are shifting their focus to upcoming quarter earnings, which will set the field for stock-specific movement.”
Non-farm payrolls increased by 222,000 jobs last month, a report by the US Labor Department showed on Friday. It was the second biggest increase this year and topped economists’ expectations for a 179,000 gain.
Sectorally, information technology (IT) stocks led the rally with the BSE IT index gaining 2.9% at the close. BSE Bankex, BSE Healthcare and BSE Metals also jumped 1.06%, 1.1% and 1.4%, respectively.
June quarter corporate earnings announcements, which will start this week, are expected to be tepid and may dent investor sentiment.
Analysts say that sluggish earnings for the quarter have already been factored in.
“Unless there is major disappointment in Q1 results, the market sentiment is not going to be disturbed as investors are already aware of pressures that the IT and pharma sectors are reeling under. Recovery in these sectors in FY19 will be crucial,” said Joshi.
According to ICICI Securities, tier-1 IT companies are expected to start FY18 with reasonable constant currency growth of -1% to 2.5% in otherwise seasonally strong quarters, while dollar revenue growth could be aided by cross-currency tail winds ranging from 40-90 basis points.
One basis point is one-hundredth of a percentage point.
It said inter-quarter appreciation of the rupee against dollar could negatively impact rupee revenue growth. The brokerage firm added that rupee appreciation coupled with moderate wage hikes and visa costs could create margin headwinds in the quarter, partly offset by cross-currency benefits and operational efficiency.
According to Kotak Institutional Equities, earnings before interest and taxes (Ebit) margin of IT companies would be impacted by rupee appreciation, visa costs and wage revisions. The rupee has appreciated 5.25% against the dollar this year.
Reuters contributed to this story.