Sensex, Nifty see most gains since July; rupee since Jan 2012

Mumbai: Return of foreign institutional investors (FIIs) drove Sensex and Nifty to deliver their best monthly performance in four months in November as crude oil prices logged steepest correction in a decade, relieving the pressure on fiscal balances.

Rupee too, logged best returns in nearly seven years.

BSE’s 30-share Sensex rose 5.09% in November to 36,194.30, while National Stock Exchange’s (NSE) 50-share Nifty climbed 4.72% in the month to 10,876.75. It was the best monthly gain since July for both the indices.

“With oil prices correcting, global scenario is changing and EMs (emerging markets) growth is expected to be better,” said R Sreesankar, co-head of institutional equities at Prabhudas Lilladher Pvt Ltd.

FIIs bought a net of $720.14 worth of Indian shares since the start of November to 28 November, likely to be their best such inflows since March this year. On the other hand, domestic institutional investors (DIIs) sold a net of Rs. 689.35 crore of Indian shares since the start of the month to 29 November, their worst such outflow since March 2017.

“Clearly, fiscal and trade deficit pressure is easing with rupee rising, with oil correcting, and the sentiment from FIIs is positive to that extent,” added Sreesankar.

Brent crude oil prices have corrected 21.34% this month to trade at 59.03 per barrel, on track for highest such monthly correction since October 2008.

Indian rupee recovered 6.28% in the month to close at 69.58 per US Dollar, staging its smartest recovery since January 2012.

“Whether the FIIs will continue to be net buyers over next few months, will depend on global factors,” said Sreesankar.

The month also saw foreign brokerages warming up to emerging markets at large, and India in particular.

On Tuesday, HSBC raised its rating on Indian equities to “neutral” from “underweight”, citing recent underperformance and more reasonable valuations.

“Since end-August, India underperformed because of issues in local banks, currency weakness and oil price volatility,” HSBC analysts said in a note.

“Despite recent underperformance, these risks remain for Indian equity market. But investors’ holdings now lowest relative to history, valuations more reasonable, 2019e (expected) earnings growth highest in region,” HSBC analysts said, adding, “We raise Indian equities from underweight to neutral in a regional context.”

“In the near term, the narrative that FIIs will continue to put money in India is supportive in terms of oil prices and Fed commentary. Whether it sustains or not, will depend of actual Fed action,” said Gautam Chhaochharia, head of research at UBS Securities India Pvt. Ltd.

On Wednesday, US Federal Reserve Chair Jerome Powell said the policy rate is now “just below” estimates of a level that neither brakes nor boosts a healthy economy, comments that many took as signalling the Fed’s three-year tightening cycle is drawing to a close.

However, risks still loomed over the improved risk appetite.

“We need to remember that US-China trade war is a hangover. Domestic election results will also matter,” added Chhaocharia.

All was not well on valuations front too, as earnings downgrade risks did not wane.

“Equities are likely to face resistance at higher levels. High valuations amidst high earnings downgrade risks keep us cautious on the market. Elections outcomes may keep portfolio stocks further volatile,” Standard Chartered Securities (India) Ltd said in market commentary on Friday.

“Indian markets are yet to factor the low margin win for the NDA (National Democratic Alliance) as compared to 2014, in our view,” Standard Chartered said pointing that derivatives suggest maximum open interest buildup seen for call writers at 11,000 Nifty and put writers at 10,500 Nifty levels, which implied 11000 is likely to be upside resistance, while 10500 could be near term supports for Nifty futures.

Only four of 19 sectoral indices closed higher in the month.

The top gainers were BSE IT index and BSE Teck index which gained 26.77% and 11.89% respectively.

Nineteen of 30 Sensex stocks closed higher. Private lender IndusInd Bank Ltd. led the gains with a 16.52% rise.

Reuters contributed to this story.