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Equity markets regained some lost ground on Thursday after domestic institutions turned buyers. Benchmark indices ended the day higher by about one per cent, as investors resorted to short-covering to limit losses.
Market participants said the investor outlook on equities continues to remain bearish, due to volatile currency movement. The silver lining was buying activity by life insurance companies, particularly Life Insurance Corporation (LIC) in recent days.
The rally was supported by buying activity across all sectors, except banking. The BSE Bankex was up 0.3 per cent at the end of the day's trading session.
"The RBI (central bank) guideline asking banks to make provisions for unhedged forex exposure has confused investors. There is lack of clarity on the issue and investors are wary of investing into this sector at this point," said Gaurav Bhandari, senior vice-president, Centrum Broking. Stock analysts said the sector could see some short-covering activity in the next four to five days.
On Thursday, the BSE Sensex closed at 19,410, up 233 points or 1.2 per cent. The NSE Nifty ended the day at 5,836, up 66 points or 1.1 per cent.
The rupee saw sharp appreciation during the day, touching a high of Rs 59.91 against the dollar. However, it closed at Rs 60.13 a dollar, higher than the previous close of Rs 60.22. Gains in the domestic currency, however, did not significantly impact the day's market movement, said analysts. But a further slide could send the market on a downtrend, they added.
"The rupee is a major factor in the market. It might get some resistance at Rs 61-61.5 (against the dollar) levels. If it goes beyond Rs 63-levels, then the market could see some pain," said Bhandari.
Stocks of the fast moving consumer foods (FMCG) and Information technology (IT) sectors led the rally. FMCG major ITC was the best performing stock in the Sensex, up 3.7 per cent. IT giants TCS, Infosys and Wipro were up by two to three per cent each. Shares of Reliance and Larsen & Toubro also moved up on short-covering, said analysts, with each up around one per cent.
For the day, domestic investors were net buyers, while foreign institutional investors continued their selling spree. "It is not surprising that domestics have started buying when FIIs turn sellers. There was a similar trend in 2009, as well as in 2011. Those domestic institutions which have the ability to significantly move around their investments are doing so at this point," said Vetri Subramaniam, head, equity funds, at Religare Asset Management.
According to market participants, LIC has been active in the market and was seen buying across all counters.
Domestic investors, faced with redemption pressures, had been heavy sellers in the market while foreign investors had been net buyers during recent months. However, they reversed their stance as the rupee began its downward trend on June 11. Since then, FIIs have sold close to Rs 11,370 crore. DIIs, on the other hand, have been steady buyers, except on two occasions, pumping in Rs 8,755 crore.
Many fear the change in trend might not last. "Domestic investors are currently buying as the valuations are attractive in some stocks at this point. However, it is not an overall change in their buying trend. They would also hold back investments if need be," said Mehraboon Jamhed Irani, principal at Nirmal Bang.
