Bank rally lifts markets to three-month high; Sensex, Nifty climb over 7%

The Indian markets on Friday climbed to their highest level in nearly three months, led by sharp gains in banking stocks on optimism that the worst of the bad loan cycle was over. 

A rally in global equities amid softening US bond yields and improvement in ties between North Korea and South Korea boosted investor sentiment.

The Sensex gained 256 points, or 0.74 per cent, to close at 34,969, while the broader Nifty closed 74.5 points, or 0.7 per cent, higher at 10,692. Both indices closed at their highest level since February 2 and less than 4 per cent shy of their all-time highs touched in late January.  The Sensex and the Nifty also registered their fifth straight weekly advance, during which they climbed over 7 per cent. 

The latest rebound in the market has defied headwind such as rising crude oil prices and the weakening rupee against the dollar. The rally has been spurred by domestic institutional investors (DII) buying, while foreign portfolio investors (FPIs) have been largely on the sidelines. 

On Friday, FPIs net sold shares worth Rs 7.6 billion, while domestic institutions remained net buyers to the tune of Rs 6.3 billion, the provisional data showed. During the week, when the benchmark indices rose 1.6 per cent, FPIs were net sellers in all five sessions, while DIIs, particularly mutual funds (MFs), were strong buyers.

Market players see limited upside from current levels. “The market might not be able to repeat 2017-like performance. Currently, the markets are facing headwind such as rising crude oil prices and upcoming elections. Hence, there would be some volatility. However, corporate performance has remained positive and earnings are showing signs of recovery. Hence, downside seems to be protected,” said Sudip Bandyopadhyay, group chairman, Inditrade Capital.

Most global markets traded in the green on Friday after the yield on 10-year US Treasury softened to 2.97. The truce in the Korean peninsula also calmed the nerves of global investors, who have been concerned about escalating tensions between both nations. The top three gainers on the Sensex were banking stocks. Axis Bank rallied 9 per cent, the most among Sensex components, followed by SBI and ICICI Bank, which gained 4 per cent and 3.34 per cent, respectively. Investors lapped up banking shares after Shikha Sharma, Axis Bank chief executive officer, said the recognition of bad loans in this cycle was “nearly complete”. Axis Bank shares rose even as it posted its first-ever quarterly loss on account of higher provisioning for non-performing loans.

Other major gainers on the Sensex were Reliance Industries, which rose 2 per cent ahead of its results, and Larsen and Toubro, which added 2.2 per cent. The broader markets, too, remained buoyant on Friday with the BSE mid- and small-cap indices gaining 0.8 per cent and 0.4 per cent, respectively. Of the 19 sectoral BSE indices, 16 ended with gains. The BSE Bankex gained the most at 2 per cent. The NSE Volatility Index, a gauge for market volatility, fell 0.2 per cent. Analysts expect markets to remain range-bound with a positive bias.