No pronounced buying by FIIs to signal sustainable rebound.
Indian markets mirrored the strong sentiment across Asia on Monday, as investors welcomed the easing of political tensions in Egypt that, in turn, led to a softening of crude prices. On Monday, Indian benchmark indices registered their highest single-day gain in more than four months, accompanied by significant short-covering.
The 30-share Sensex of the Bombay Stock Exchange (BSE) gained 473.59 points, or 2.67 per cent, to end the day at 18,202.20. The index has now gained nearly 740 points in the last two trading sessions. The broader S&P CNX Nifty of the National Stock Exchange closed at 5,456, up 146 points, or 2.75 per cent.
The upbeat mood among investors resulted in all the sectoral and broader indices ending the day with significant gains. Both the BSE Midcap and BSE Smallcap outperformed benchmark indices with gains of nearly 4 per cent each. Market breadth was strong, with nearly 80 per cent of stocks gaining ground.(Click for graph)
News that India’s inflation declined marginally in January also acted as a catalyst. Inflation for January was at 8.23 per cent, compared with 8.43 per cent in December, a ministry statement said.
“Firm global cues, the exit of Egyptian president Hosni Mubarak and the subsequent drop in oil prices helped lift market sentiment today,” said Amar Ambani, head of research (India private clients) at India Infoline. “If it wasn’t for subdued oil & gas heavyweights — RIL and ONGC — the Sensex and Nifty would have seen bigger gains,” he added.
The international price of crude oil has lost nearly $3.50 a barrel in the last one week.
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Elsewhere in Asia, Hong Kong’s Hang Seng gained nearly 300 points, or 1.28 per cent. Tokyo’s Nikkei and the Shanghai’s Composite also rose by 1.13 per cent and 2.53 per cent, respectively. China has now become the world’s second-largest economy, overtaking Japan. Japan’s nominal gross domestic product stood at $5.474 trillion last year, less than China’s $5.879 trillion.
Experts, however, caution that the rise in the last couple of trading sessions does not yet signal the start of a sustainable rally. They feel it will take some time before foreign institutional investors (FIIs) start pumping liquidity more consistently into the Indian market.
“This was a relief rally in the wake of events in Egypt over the weekend. Oil has also come down and with inflation coming off slightly, there is a perception that the worst is behind us. But we haven’t seen pronounced buying by FIIs to signal that this rally is sustainable. In my view, 16,500 is the sort of level where the Sensex will find a floor,” said Saurabh Mukherjea, head of equities at Ambit Capital.
Michael Kurtz, head of strategy (Asia) at Macquaire Securities group, said India may be the source to fund increased investments in Taiwan and Korea. Much of the money being withdrawn from India by FIIs may have been used in those markets, he says.
"The trend of leaning towards the Korean and Taiwanese markets is likely to be played out until the close of the second quarter (June 2011). Since December, the contribution to regional cross-border portfolio inflows from markets like India has fallen, while Korea and Taiwan are accounting for a larger share. India remains vulnerable to oil price shocks, coupled with a high current account deficit and subsidy bill," Kurtz warned.
Provisional figures, meanwhile, showed that FIIs were net buyers in the Indian market at Rs 147.64 crore on Monday, while their domestic counterparts net bought Indian shares worth Rs 109.02 crore.
Among the index stocks, RIL remained subdued, though it managed to recover significantly from the day's lows. It gained 0.57 per cent to close at Rs 915.10, after touching a low of Rs 894.10. The company has failed to arrive at a consensus with the market regulator over consent terms and might soon find itself facing a hefty penalty.
Other index constituents that posted significant gains included Tata Motors, BHEL, Tata Steel, State Bank of India, BPCL, ICICI Bank, Hindalco and Hero Honda.