MUMBAI: Global cues and easing tension between India and China boosted investor sentiment, lifting stock markets to a four-month high on Monday. The BSE Sensex ended at 36,487.28, up 465.86 points or 1.29%. The Nifty closed at 10,763.65, up 156.30 or 1.47%.
In a significant development, Chinese troops have moved back personnel and tents by 1-2 kilometres at some of the friction points along the Line of Actual Control border between India and China. The development comes a week after top military commanders of the two countries met in a bid to salvage an agreement reached earlier in June on de-escalation of tensions and a disengagement of troops on both sides.
Global markets rallied on hopes of a faster economic revival in China. Stocks in China closed higher for the fifth straight session on Monday, with the Shanghai Composite soaring 5.71%. Hong Kong’s Hang Seng index also saw robust gains rising 3.81% while elsewhere in the region, the Nikkei in Japan rose 1.83%. Overall, the MSCI Asia ex-Japan index jumped 1.75%.
“Indian indices ended with gains, in sync with solid global cues. Global markets rallied on hopes of a faster Chinese economic revival which could provide a support to the global economy. The positivity regarding the recovery is extending to Indian markets also, in spite of surging infections, along with liquidity. The first signs of de-escalation of India –China border tensions should also calm the markets," Vinod Nair, Head of Research at Geojit Financial Services said.
Flush with liquidity, Indian benchmark indices have risen over 30% from the lows touched in March. They are nearly 13% away from their record highs in January. Indian volatility index or VIX is also hovering around 25-30 level from the highs of 86 in March, indicating that fear and concerns among investors are ebbing.
However, analysts at Nomura are concerned that a flattening mobility curve amid a rising pandemic curve is a key risk. The Center for Monitoring Indian Economy (CMIE) weekly data suggest that, over the past 15 days, the overall unemployment rate inched up by to 8.9% for the week ended 5 July. Power demand contracted by 5.8% week-on-week (seasonally adjusted) for the week to 5 July after growth of 4.1% in the prior week. “While business resumption continued in June, activity remains about ~30pp below pre-pandemic levels. So the normalisation is still far from complete, and activity appears to be plateauing at a lower level.," it added.
India entered the second tranche of opening up, unlock 2, on 1 July. The government has allowed further relaxations in economic activity in a calibrated manner. However, the number of cases are on the rise in India.
“The continued rise in new cases has raised the risk that economies could re-enter into lockdown to curb the spread of the virus. Policy-makers will face difficult decisions on how to manage economic activity alongside managing the virus outbreak. But in aggregate, we see selective and rolling measures, not the strict lockdown measures imposed earlier this year. At a global level, this means that economic activity can continue to improve, in particular helped by the economies which are reopening," said analysts at Morgan Stanley.
In other asset class, the Indian rupee closed down 0.06% at 74.69 against the US dollar.