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Business News/ Market / Stock-market-news/  Relief rally: Sensex rebounds 400 points
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Relief rally: Sensex rebounds 400 points

Between Friday and Monday, the indices have erased all of the losses caused by 7 May's steep fall, but are still down some 8.4% from their peak on 4 March

The 30-share BSE Sensex closed 1.48%, or 401.91 points, higher at 27,507.30 points. Photo: BloombergPremium
The 30-share BSE Sensex closed 1.48%, or 401.91 points, higher at 27,507.30 points. Photo: Bloomberg

Mumbai: India’s benchmark stock indices extended a rebound on hopes that the government will go slow on a dispute over the levy of minimum alternate tax (MAT) with foreign portfolio investors (FPIs), and as the markets-judged worries about a corporate earnings slowdown too have been overdone.

The 30-share BSE Sensex closed 1.48%, or 401.91 points, higher at 27,507.30 points. The National Stock Exchange’s (NSE’s) 50-share Nifty advanced 1.63%, or 133.75 points, to 8,325.25 points.

Between Friday and Monday, the indices have erased all of the losses caused by 7 May’s steep fall, but are still down some 8.4% from their peak on 4 March.

On Friday, finance minister Arun Jaitley said he was referring the dispute over MAT, a tax levied on entities that don’t pay corporate income tax because of exemptions and incentives, to a committee headed by Law Commission chairman A.P. Shah.

He said the ministry will finalize the terms of reference and other details of the high-level committee within a week.

On Monday, the government put on hold issuance of fresh notices and any further assessments on levy of MAT on FPIs.

“The government is the scriptwriter of the market direction at this moment. They created havoc by issuing MAT notices, and now they are in damage- control mode," said Deven Choksey, managing director and CEO of KR Choksey Shares and Securities Pvt. Ltd.

Dealers said the appointment of the committee had raised hopes of an eventual amicable resolution of the MAT dispute although it may take some time. Expectations of a timely onset of the monsoon added to the upbeat sentiment, although the weather department has predicted sub-par monsoon rains.

“Unwinding pressure has come down, leading to recovery. We have believed that the fundamentals of the economy are very well-positioned, and the growth will be faster if government implements some of the policy measures with grace," said Choksey.

Foreign institutional investors have pumped $6.6 billion into Indian shares in the year to date, and turned net buyers on Monday, after being net sellers in 15 of 16 sessions ended 8 May. According to provisional data on NSE, they bought a net of 169.97 crore of shares on Monday.

Some analysts say currency market fluctuations are to blame as well. “We believe that the epicentre of dislocation can be sourced to unexpected dollar depreciation, a reversal of a year-long winning trade. Since June 2014, the most powerful trend has been long dollar, long fixed income and short commodities," Edelweiss Securities Ltd wrote in a note on Monday, adding the performance of both Indian equities and the currency was unusually correlated to that of the US dollar.

The US currency weakened after US jobs data 8 May showed April non-farm payrolls increased roughly in line with forecasts, but the March figure was revised significantly downward.

“We believe that we are done with the USD fall-commodity rise trade. Indeed, post the correction, Indian markets now trade at a historically low premium to MSCI EM (emerging markets), barring the Lehman collapse period," wrote Edelweiss analysts Nirav Sheth and Kapil Gupta.

“Further, India’s economy 6 months out will be better, backed by higher real incomes and renewed government spending. This will set up the base for earnings upgrade cycle to re-start after 4 painful years," the Edelweiss analysts added.

Also, though corporate earnings have been a dampener, they have not been as bad as expected. “It’s still early in the earnings season (one third done), but expectations have been low (0%), the market weak (-8%)," Citigroup analysts Aditya Narain and Jitender Tokas wrote in a note on 7 May.

“That’s possibly why there’s a ‘feel bad’ about earnings: but in real terms, they are in line (+13%: Sensex, 3%: Citi Univ), beats outnumber misses 13/11 and (ex-energy/Metals) earnings are reasonable at 14%. That’s not enough to hold off the ongoing earnings downgrade cycle: but so far, earnings are low, not below," the analysts added.

In Monday’s trade, all sectoral indices rose, barring the S&P BSE Fast Moving Consumer Goods index, which slipped 0.3%. The BSE Auto index and BSE Metal index were the top gainers, rising 2.5% each.

Auto stocks gained after data from an industry lobby group showed that car sales grew at their fastest pace in nearly three years in April at 18.14% to 159,548 units due to a dramatic shift in market sentiment. Tata Motors Ltd advanced 3.2%, while Maruti Suzuki India Ltd and Mahindra and Mahindra Ltd gained 1.2% and 0.97%, respectively.

Financials were the top gainers among Sensex stocks. Top lender State Bank of India climbed 5.4%, while mortgage lender Housing Development Finance Corp. Ltd rose 3.2%. Private lenders ICICI Bank Ltd and HDFC Bank Ltd rose 2% and 0.83%, respectively.

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Published: 11 May 2015, 04:15 PM IST
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