Gains 471 points over euro zone bailout hopes.
Dancing to the Europe tune, domestic stock markets on Monday saw their biggest single-day rally in three months. After falling like a pack of cards from its recent high levels, the key benchmark index, Sensex, rose 471 points, or three per cent, to close at 16,167 points. The broader S&P CNX Nifty of the National Stock Exchange (NSE) gained 141 points, or three per cent, to 4,851.
There was renewed hope among investors that euro zone leaders would come up with concrete steps this week towards activating a crucial bailout fund. The markets also rose on reports that the International Monetary Fund (IMF) was considering a helping hand to debt ridden Italy. However, the same was later denied by IMF officials.
Markets were boosted by German and French efforts to outline proposals for a fiscal union before the European Union summit on December 9, seen by investors as, possibly, the last chance to avert a breakdown of the single currency area.
The MSCI World Equity Index gained 0.9 per cent, rising for the first time after 10 consecutive days of losses. In Europe, the STOXX 50 index rose 0.73 per cent, DAX rose 0.57 per cent and FTSE index was up 0.36 per cent. In Asia, the Hang Seng gained 1.97 per cent. Nikkei was up 1.56 per cent and Shanghai Composite ended flat after gaining 0.01 per cent.
Market experts are not too confident about on Monday’s rally. A key indication lies in the fact that share prices rose on extremely thin volumes. According to provisional data, foreign institutional investors (FIIs) were net sellers of equity worth Rs 300 crore while domestic institutional investors made purchases of Rs 300 crore. Portfolios of large institutions have been recently hurt, thanks to a sharp fall in the rupee’s value against the dollar, forcing them to sell. The rupee is down 18 per cent against the US dollar since July this year.
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While State Bank of India ended up 5.3 per cent, rivals ICICI Bank and HDFC added 4.4 per cent and 2.3 per cent, respectively. Leading software services exporter Tata Consultancy Services rose 2.3 per cent, Infosys gained 1.4 per cent and Wipro closed up 0.6 per cent. Traders said the local market was oversold and the positive trends elsewhere were further supported by domestic factors such as the government’s decision last week to allow global supermarket giants such as WalMart and Tesco to enter India with a 51 per cent stake.
“Globally, the stock rally is mainly due to nearing of derivative expiry. Those who had short positions were covering it at the end of the month. However, India’s GDP, figures for which will be out in a couple of days, is expected to be around 6.25 per cent. This will further spoil sentiment and the markets will fall further,” said Kishor Ostwal, chairman and managing director, CNI Global Research.
“There is a fresh relief the government’s action has brought in, as it gives the feeling that India will push for more reforms and that is a positive sign which is being sent out,” said Jagannadham Thunuguntla, strategist and head of research at brokerage SMC Global.
The opening up of the retail sector was the biggest reform in years by the ruling coalition.
“However, I think the bounce-back in the market is temporary, as the overall global economic scenario still looks bleak,” Thunuguntla said.
The market has seen heavy selling by foreign institutional investors in recent sessions, who have pulled out $739 million over four sessions to Thursday, data from the market regulator showed. The market was now awaiting economic growth data due on Wednesday and the central bank’s mid-quarter policy on December 16 for further cues, traders said.
Energy major Reliance Industries, which has the heaviest weight on the main index, rose 3.98 per cent. Suzlon Energy rose more than 3.8 per cent after it signed a contract for a 75 Mw power project worth Rs 470 crore.