Indian market rebound 5% from March lows

Passing of key Bills and receding fear of US interest rate rise both improve investor sentiment

The Indian market has seen a dramatic five per cent rebound from its recent lows of two weeks before.  The recovery, triggered by value buying, has been supported by passage of key government bills by Parliament and easing of worries on an interest rate increase by the US Federal Reserve.

The benchmark Sensex has gained from 27,457.6 at the close of March 26 to 28,879.38 on Friday. This has helped reverse most of the losses in March, when the benchmark indices dropped nearly five per cent, the most in a little over two years.

With the recent recovery, the benchmark Sensex is now only two per cent (less than 700 points) below its all-time closing high of 29,559.18, on January 29. The total market capitalisation of all BSE-listed companies has surpassed its previous record, by crossing Rs 106 lakh crore on Friday -- the broader market has outperformed the benchmark indices in the past two weeks. The BSE Small Cap Index has rallied 13 per cent and the BSE Mid Cap by seven per cent since March 26.

Market experts said last month's fall was primarily for two reasons. The first being fear of an imminent interest rate increase in the US, which trigged a sell-off in risky assets. Second, subdued estimates for March quarter corporate earnings.

Ajay Bodke, head-investment strategy & advisory, Prabhudas Lilladher, said the fear of a rate rise in the US had eased considerably and the market has disappointed with weak fourth quarter numbers.

“The scaremongering that the Fed will advance its rate increase has proved unfounded. Now, the expectations are that there will be no rise till September and it will be a one-off increase,” he said.

“The negative news flow on the global front — US rate hike, Greece or tensions in Ukraine -- has eased a bit. This has improved the risk appetite of global investors,” said U R Bhat, managing director, Dalton Capital Advisors.

Most global equity markets also saw a rise in the past two weeks. The MSCI Emerging Market index, for instance, has gained nearly seven per cent since March 26.

Experts said the valuations had turned attractive after the correction in March, which led to a lot of buying interest. In the past two weeks, foreign institutional investors bought shares worth a little over $500 million and domestic mutual funds have been net buyers by around Rs 2,000 crore.

Analysts said passing of key legislation by Parliament, including the insurance bill, had boosted sentiment.

“Despite opposition the Narendra Modi government faces in the upper house, it has been able to pass three crucial legislations. The building blocks of reforms are being laid, albeit at a slower pace than what some of the enthusiasts would like,” said Bodke.

Analysts said the market direction could be guided by corporate earnings, which will begin next week with Tata Consultancy Services (TCS), the country’s most valuable company, announcing its numbers on Thursday.

“There isn’t much expected from India Inc from the March quarter. The market has priced in subdued earnings. However, if there is a huge negative surprise, the markets could correct,” said Bhat.