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The Indian markets on Tuesday witnessed a sharp rebound with benchmark indices soaring 1.6 per cent as investors judged recent losses as excessive. The buying was led by domestic institutional investors (DIIs) even as their foreign counterparts continued to trim their exposure to Indian markets. Experts said the markets may continue to remain volatile ahead of the expiry of December series derivatives contracts on Thursday.
Gaining the most in a week, the benchmark Sensex added 406 points, or 1.57 per cent to close at 26,213.44. Meanwhile, the Nifty 50 added 124.6 points, or 1.58 per cent to end at 8,032.85.
The Nifty had declined nearly a per cent on Monday to its lowest level since May 24, after Prime Minister Narendra Modi hinted at raising taxes on income earned from share trading.
"The market looked a bit oversold and investors used the opportunity to value-pick stocks," said Jitendra Panda, chief executive officer at Peerless Securities. "But we can't say that the worst is behind us. Market will remain volatile till we get more clarity on foreign investors' plan for the emerging-markets. "
Foreign institutional investors (FIIs) sold shares worth Rs 713 crore, while DIIs were emerged as strong buyers pumping in Rs 1,502 crore.
Market players said large state-owned institutions, including LIC, have been nudged to put more money into the markets amid sharp exodus of foreign funds. So far during the quarter, FIIs have pulled out nearly $4.3 billion from the domestic markets, trimming their year to date investment to $3.2 billion.
Experts say Tuesday's rally may not be a trend reversal and market could remain under pressure till the time FIIs flows stabilise.
"Clearly, the sudden surge caught participants by surprise and triggered short covering. But, it's too early to call reversal on a single day's move and we suggest maintaining a cautious approach. The derivatives expiry will be more volatile than it has been for several months," said Jayant Manglik, president, retail distribution, Religare Securities.
Market players said pre-Budget optimism has started to build in the markets. "With the Union Budget just a month away, potential for tax reliefs and possible increase in income tax exemption limits, gave markets enough reason to shrug off the bearishness," said Anand James, chief market strategist, Geojit BNP Paribas.
Consumer goods, banking, metals and pharma stocks rallied sharply. ITC climbed the most in four months gaining four cent, followed by Tata Steel, which rose three per cent. Gail India was the only Sensex component to end with losses.
