 "Bank stocks lead charge")
The benchmark indices climbed two per cent on Wednesday. The BSE Sensex rose two per cent, or 463 points, to close at 24,243, its best two-day percentage gain since May 2014 (best two-day climb in 22 months). This came on the back of strong global cues, Reserve Bank of India (RBI)'s easing rules allowing lenders to bolster capital ratios, and Budget optimism.
The 50-share Nifty posted its best two-day percentage gain in six and a half years. It rose 146 points, or two per cent, to close at 7,369, its best two-day percentage gain since July 2009.
Banking stocks led the rally on Wednesday after RBI eased Tier-I capital rules. This measure, along with two other relaxations, is expected to help shore up the capital of public sector banks. The banking index and the PSU (public sector undertaking) Banking Index on the NSE (National Stock Exchange) gained five and 10 per cent, respectively. SBI (State Bank of India) and ICICI Bank rose the most, up 12.6 and 7.6 per cent, respectively.
International investors have been pulling out from emerging markets, including India, and are moving to safe assets like US Treasury and gold. Wednesday was different. They bought Indian shares worth Rs 1,437 crore. Domestic institutions sold shares worth Rs 593 crore, according to provisional data from the exchanges. In the year so far, foreign institutional investors have sold shares worth more than $2.4 billion. The rupee rose to its highest level in six weeks against the dollar.
"Let us not celebrate too early. We have to closely watch how China shapes up, the potential changes in the Indian Budget for relief to investors, and the RBI action in the next few days," said U R Bhat, managing director, Dalton Capital Advisors (India).
India is likely to clock a GDP (gross domestic product) growth rate of 7.8 per cent in 2016-17, up from 7.6 per cent in 2015-16, largely driven by higher discretionary demand, a Nomura report said on Wednesday.
Global stocks rose on Wednesday for a second consecutive day on easing concerns about growth in the US, Australia, and China. China's stocks rallied the most since November, led by real estate firms, despite Moody's Investors Service reducing the country's credit-rating outlook to negative. Most global stocks, emerging market currencies, and crude oil prices had advanced on Tuesday after the People's Bank of China cut lenders' reserve requirements and the US reported better-than-expected factory data.
In India, the market breadth was strong, with 1,964 advances versus 712 declines. Twenty three out of 30 Sensex components ended in the green. All sectoral indices barring FMCG (fast-moving consumer goods) closed in the green. The major gainers for the day were realty and banking, which rose five per cent each.
On Tuesday, Indian markets had posted their biggest single-day jump in 30 months, after a rally in consumer and banking stocks on hopes that the RBI would soon slash key policy rates. The spurt in the market triggered short-covering, which further lifted prices. An example of short-covering: You sold short 100 shares of XYZ at $20 per share, based on your view that the shares were headed lower. When XYZ declines to $15, you buy back 100 shares of XYZ in the market to cover your short position (and pocket a gross profit of $500 from your short trade). This process is known as short covering.
A recession in China, followed by an emerging-market debt crisis and a geopolitical crisis, remain the biggest tail risk for investors, said experts. "The global cues will still be important. The US seems to be on a mend, but the jury is still out on whether China will shape up. Things in Europe are not all that rosy, with European banks no stronger than they were earlier," said Bhat.
