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Markets rebound on hopes of more foreign liquidity

Indian markets which are rallying riding on the tail coat of a foreign money, is likely to get a further boost post the stimulus (Mint)Premium
Indian markets which are rallying riding on the tail coat of a foreign money, is likely to get a further boost post the stimulus (Mint)

  • Global shares climbed on Tuesday ahead of Janet Yellen’s Treasury Secretary confirmation speech, in which she is expected to bolster the case for heavy fiscal stimulus
  • The BSE Sensex ended at 49,398.29, up 834.02 points or 1.72% and Nifty closed at 14,521.15, up 239.85 points or 1.68%

Mumbai: Indian markets bounced back on Tuesday after two days of losses. Investors have once again started piling on stocks with Janet Yellen, who is US President-elect Joe Biden’s nominee to run the Treasury Department, calling for a much larger stimulus. The benchmark indices gained nearly 2%, in a biggest single day gain since 25 November. The BSE Sensex ended at 49,398.29, up 834.02 points or 1.72%. The Nifty closed at 14,521.15, up 239.85 points or 1.68%.

Global shares climbed on Tuesday ahead of Janet Yellen’s Treasury Secretary confirmation speech, in which she is expected to bolster the case for heavy fiscal stimulus in the world’s largest economy. Yellen is expected to tell the Senate Finance Committee that the government must “act big" with its next coronavirus relief package, according to her prepared statement seen by Reuters. Concerns that pandemic lockdowns could slow the road to economic recovery faded into the background as markets prepared for possible positive surprises from the earnings season in global markets.

In other Asia-Pacific region, South Korea’s Kospi led gains among the region’s major markets, rising 2.61%, Hong Kong’s Hang Seng index jumped 2.14%, Japan’s Nikkei 225 jumped 1.39% while the Topix index advanced 0.56%.

“The Indian markets have recovered strongly following the global market and today’s rise is on account of improved sentiments, especially in the Asian market, after the positive GDP numbers released by China. Apart from this, liquidity is continuing to be in favour of the Indian market. FIIs are continuously buying Indian equities while the quantum of DIIs selling has reduced significantly in last few days which is a positive for overall sentiments," Neeraj Chadawar, Head - Quantitative Equity Research, Axis Securities.

According to Chadawar foreign institutional investors (FIIs) are continuously buying emerging markets equities and India is the biggest beneficiary on account of faster than expected economic recovery and improved earnings outlook.

“Current valuations are built on the expectation of faster than expected earnings recovery. Positive earnings momentum is likely to continue in Q3, but if recovery falls short then it could be a challenge for the market to sustain at a higher multiple. This is a buy in dip market where sector rotation is very important to generate outperformance," he said.

Indian markets rally has been single-handedly led by foreign money with domestic institutional investors (DIIs) consistently dumping equites for over three months. In 2021 so far FIIs have invested $2.56 billion in Indian shares while DIIs have sold equities worth 12565.10 crore.

Biden has already outlined a $1.9 trillion stimulus package proposal last week, saying bold investment was needed to jump-start the economy and accelerate the distribution of vaccines to bring the virus under control. Indian markets which are rallying riding on the tail coat of a foreign money, is likely to get a further boost post the stimulus.

According to Vinod Nair, Head of Research, Geojit Financial Services the current market will get further boost by foreign inflow if additional US stimulus kicks in. “However, recent volatility in the market has increased due to concerns over high valuations and bond yields, investors should be watchful."

On the back of improving macro economy following covid, Indian markets are expected to continue the markets momentum. However, vaccine progress, Union budget announcements and corporate earnings are likely to big factors that will swing the markets forward.

“While India valuations have now started inching above historical premium to emerging ,markets, this should be seen in the context of accelerating earnings upgrades. We expect India's real GDP growth to rebound to 11.5% YoY in FY22, one of the fastest in Asia, following a deeper contraction in FY21. We believe the Indian economy offers large local market potential, low labour costs, macroeconomic stability and the hope of strengthening ongoing reform momentum," UBS said in a note on 19 January.

Beyond FY22, UBS expects India's growth to slow to 6% in the subsequent years and inflation to remain stable at 4%.

(Reuters contributed to the story)

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