Indian stocks recover on abating US recession fears

India’s benchmark indices recovered on Friday as new data eased fears of a recession brewing in the US. Foreign institutional investors (FIIs) bought domestic stocks for a second straight day while domestic institutions continued to support the stock market at lower levels.

Friday’s bounce was led by Reliance Industries Ltd, Infosys Ltd, Madhindra and Mahindra Ltd, State Bank of India, and HDFC Bank Ltd–these stocks accounted for over two-fifths of Nifty’s 250.50 point rally.

The Nifty, however, edged lower for a second straight week, prompting analysts to expect consolidation at higher index levels, with the situation in West Asia remaining fluid and with no major domestic triggers.

The Nifty and Sensex gained 1.04% each to close at 24,367.5 and 79,705.91 points, respectively. The fear gauge, India Vix, a key indicator of market anxiety, fell 7.45% to 15.34 on Friday, with domestic institutional investors buying a provisional ₹3,979.59 crore and FIIs chipping in a modest ₹406.72 crore, exchange data show.

“Global overhang on our markets isn’t entirely out of the way, but fundamentally nothing’s wrong and we could inch up in a 24,200-24,600 range in the coming week,” said Sudip Bandyopadhyay, director, Inditrade Capital. “After a scorching rally since the election the recent pullback is actually healthy as it tempers any exuberance.”

Positive global cues

The Nifty has risen 14.28% in two months, from 21,884.50 points on the day of the Lok Sabha election results on 4 June to a record closing of 25,010.90 on 1 August. From there, it has pulled back a modest 2.6% on negative global cues.

Recessionary fears in the US had gained ground earlier this week when data showed unemployment in July rising to a near three-year high of 4.3%. 

The fears abated somewhat after US data on Thursday showed that the number of people seeking unemployment benefits in the week ended 3 August at 233,000, below the anticipated 240,000.

This caused the S&P 500 to rally 2.3% to 5,319.31 points on Thursday, its best day in three years. Taking cues from this the Indian benchmarks traded positive throughout Friday. 

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Another factor leading Friday’s bullishness came from Japan. On Wednesday, a Bank of Japan official said the central bank wouldn’t raise rates amid market instability, which enabled the Nikkei 225 to recover from Monday’s 12% fall.

BoJ had on 31 July hiked a short-term policy rate to 0.25% from 0.1%, sending Tokyo stocks into free-fall. Bond yields surged on yen carry trade unwinding–as those who had borrowed a cheaper yen to invest in higher yielding risky global equities closed out the trades with money getting dearer.

Those fears have since abated, with only tensions between Israel and Iran likely to upset global stocks’ applecart.

“India Vix descended from 20 levels to 15 during the week, showing an easing in cautiousness in the market and improvement in sentiments,” said Siddhartha Khemka, head, retail research, Motilal Oswal Financial Services.

So far this fiscal year, FIIs have net invested ₹11,240 crore in India, while DIIs have net invested ₹1.75 trillion.

Also read | Nifty valuation rises, but not everyone is worried

Ola Electric listing

Another highlight of Friday was the listing of the pure-play electric vehicle maker Ola Electric Ltd listing at a 20% premium (issue price ₹76) at ₹91.20 per share, and closing at that level. 

Two-fifths of the 525 million shares traded resulted in delivery, showed exchange data. The company was valued at $4.8 billion at the end of the day’s trading on Friday.

Ola Electric’s initial public offering comprised a fresh issue of shares worth ₹5,500 crore and a secondary sale of 84.9 million equity shares. 

The company will use part of the proceeds from the IPO to expand the capacity of its subsidiary Ola Cell Technologies’s cell manufacturing plant from 5 GWh to 6.4 GWh.

Also read | No re-routing: Ola Electric must stick to its road-map for investors