BackStocks rebound on US stimulus hopes
Stocks soared as investors expected a larger stimulus programme to channel more liquidity into stocks, especially those in emerging markets
PremiumIndian stocks bounced back on Tuesday after a two-day sell-off as investors cheered the call for a much larger stimulus from US President-elect Joe Biden’s nominee to run the Treasury department.
Stocks soared as investors expected a larger stimulus programme to channel more liquidity into stocks, especially those in emerging markets.
The gains pulled benchmark indices up by nearly 2%, the biggest daily advance since 25 November. The BSE Sensex rose 834.02 points, or 1.72%, to 49,398.29. The Nifty gained 1.68% to 14,521.15.
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Shares across global markets climbed on Tuesday ahead of Janet Yellen’s confirmation speech as US Treasury secretary.
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.
“Liquidity will continue to favour the Indian market. Foreign portfolio investors are continuously buying Indian equities while the quantum of selling by domestic institutions has reduced significantly in the last few days which is a positive for overall sentiments," said Neeraj Chadawar, head of quantitative equity research, Axis Securities.
Amid the euphoria, concerns about pandemic lockdowns in Europe and the US have receded into the background. Investors are preparing for possible positive earnings surprises across global markets.
In the Asia-Pacific, South Korea’s Kospi led gains among the region’s major markets, jumping 2.61%. Hong Kong’s Hang Seng index surged 2.14%, while Japan’s Nikkei 225 rose 1.39% and Taiwan’s Topix index advanced 0.56%.
According to Chadawar, foreign institutional investors (FIIs) are buying emerging markets equities because of a faster-than-expected economic recovery and improved earnings outlook.
“The positive earnings momentum is likely to continue in the third quarter, but if recovery falls short, then it could be a challenge for the market to sustain at a higher multiple. This is a buy-the-dips market where sector rotation is very important to generate outperformance," he said.
The stocks’ rally has been single-handedly led by foreign money with domestic institutional investors (DIIs) dumping stocks for over three months. In 2021, FIIs have invested $2.56 billion in Indian shares while DIIs have sold equities worth ₹12,565.10 crore.
Biden has already outlined a $1.9 trillion stimulus package proposal last week, saying bold investments were needed to jump-start the US economy. Indian stocks, which were riding on the tailcoat of foreign money, are likely to get a further boost post the stimulus.
Vinod Nair, head of research at Geojit Financial Services, said the additional US stimulus may boost stocks but investors need to be watchful. “However, recent volatility in the market has increased due to concerns over high valuations and bond yields, and investors should be watchful."
Investors in India are likely to track the progress in covid-19 vaccination, the Union budget and December quarter corporate earnings announcements for further cues.
“While India valuations have now started inching above historical premiums 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% year-on-year in FY22, one of the fastest in Asia, following a deeper contraction in FY21," 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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