Sensex stays afloat with domestic buyers

Sensex stays afloat with domestic buyers

Mumbai: Sensex, the benchmark index of the Bombay Stock Exchange, ended in the green Thursday, buoyed by a sharp rebound in some Asian and European markets after central bankers around the world teamed up to tackle the credit crisis in global markets and continued buying by domestic institutional investors, or DIIs—a trend that has played out since July.

Foreign institutional investors, or FIIs, considered the main driver of Indian markets have taken out around $9 billion (Rs42,030 crore) net of purchases from India this year. DIIs, however, have purchased more than Rs54,000 crore worth of stocks net of sales, one reason why the Indian index has outperformed global indices in the past two months.

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Thus far in September, FIIs have sold equities worth around $1.8 billion, or Rs5,500 crore. And domestic institutions have bought stocks worth Rs5,800 crore.

The movement of the index on Thursday mirrored its trajectory over the past several days in the wake of a global financial crisis that has seen the collapse of several American and European institutions—it fell sharply in early trades and then recovered.

On Thursday, the index recovered enough to end in the green at the end of a day that saw the country’s finance minister P. Chidambaram trying to talk up investor sentiment with the promise of more money (or liquidity) if things continued to remain tight.

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While the Dow Jones was nearly 200 points up shortly after opening, it had reversed most of the gains and was trading just around 20 points up at 8.45pm India time. And most people remain convinced that the worst is far from over.

“The news that the central banks are teaming up to fight the credit crunch head-on is giving us a lift," said CMC Markets dealer Ian Griffiths in London.

“One thing is for certain and that is that we will continue to see big swings in the equity markets until the dust starts to settle."

But on a day when central banks pumped in around $180 billion, the focus was still on Morgan Stanley, one of the two remaining large Wall Street investment banks (the other is Goldman Sachs) which tops the list of financial firms scrambling to find a buyer.

Earlier in the day, UK bank TSB took advantage of the market turmoil to achieve a long-held ambition by scooping up the country’s biggest mortgage lender, HBOS, in a $22 billion all-share deal.

In India, the Sensex slumped to around 12,558 in morning trade but eventually closed at 13,315.60, up 0.4% or 52.70 points from Wednesday’s levels.

The recovery was aided by strong buying interest from large domestic institutional investors.

According to equity strategists at brokerages and managers of some large funds, the Sensex has behaved similarly since July.

While some analysts attribute the late evening recovery to “short-covering," or investors covering their short positions, the bounce back has also been helped by strong buying interest from DIIs, which are picking stocks from lower levels.

“Short-covering, especially by foreign institutional investors is happening for two reasons," said Jignesh Desai, head of institutional sales at SBI Capital Markets Ltd, the broking arm of India’s largest lender State Bank of India.

“On the one hand, they make profits on the price differential, and on the other, they gain on the depreciating rupee," he said. For instance, the Nifty, the benchmark index of the National Stock Exchange, has fallen 7% since the beginning of September.

The Defty, or the Nifty measured in dollar terms, has fallen more than 12% because of the appreciating dollar. In such a scenario, someone who short-sells the dollar index and then covers that short-sale stands to gain more than someone who covers his shorts on the rupee index.

The focus for investors across the world has shifted from commodity prices and inflation to the global slowdown, and because of this, India could outperform other Asian and emerging markets, say fund managers.

“Indian corporates expect an improved business environment after inflation cools," said analysts Sunil Tirumalai and Nilesh Jasani of Credit Suisse Securities (India) Pvt. Ltd in a report, India Corporate Survey, released on 10 September.

“There is excessive pessimism across global markets," said Manish Srivastava, Singapore-based co-head of IIFL Capital Pte Ltd, an offshore fund mangement arm of Indian brokerage India Infoline Ltd.

Many Indian stocks are now trading at very attractive valuations, added Srivastava.

“Many funds are selling Indian equities to meet redemption pressures, as they have much higher mark-to-market losses in many other portfolio markets," said a hedge fund manager who did not want to be identified.

According to him, some of these funds will reallocate capital in Indian equities,once global markets regain confidence.

After selling Rs871 crore worth of shares through bulk deals on Wednesday, Morgan Stanley-owned entities unloaded a further Rs1,268 crore worth of shares through the same window on the Bombay Stock Exchange and the National Stock Exchange on Thursday. Jaiprakash Associates Ltd, Reliance Capital Ltd and Suzlon Energy Ltd were among the stocks that Morgan Stanley sold.

Mint’s Sanat Vallikappen and Ashwin Ramarathinam,and AFP and Reuters contributed to this story.