Sensex posts biggest monthly gain in 4 yrs

Banks, automobiles and realty stocks gain 14-20%, hoping for interest rate cut from RBI on April 5

The S&P BSE Sensex and the Nifty 50 index have reported their biggest monthly gain in the past four years, thanks to the sharp rally after the Budget. While the Sensex gained 10.2 per cent in March, the Nifty rallied 10.7 per cent.

In March, the Sensex gained 2,340 points, highest in nearly seven years. Earlier, in May 2009, the index zoomed 3,222 points in a single month. For FY16, however, the key indices have corrected around nine per cent.

The rise in March comes on the back of strong inflows from foreign institutional investors (FIIs) and foreign portfolio investors (FPIs) that put in Rs 21,327 crore ($3.18 billion) thus far in the Indian market till March 29, according to data from National Securities Depository and Securities and Exchange Board of India (Sebi).

 

Interest-rate sensitive sectors – banks, automobiles and realty – were among the top gainers in March, rallying 14-20 per cent in a hope that the Reserve Bank of India (RBI) would cut key rates in the next monetary policy review on April 5.

Among individual stocks, Tata Motors, Vedanta, Tata Steel, Hindalco Industries, Cairn India, Yes Bank, ICICI Bank, State Bank of India (SBI), Punjab National Bank, Adani Ports, Ambuja Cements, Bharat Heavy Electricals Limited (BHEL) and Bosch from the Nifty 50 index rallied more than 20 per cent each during the month.

The road ahead

Despite the sharp rebound from CY16 lows, analysts still believe that the structural growth challenges facing emerging markets (EMs) are over. Economists at HSBC, for instance, recently downgraded their 2016 growth forecast to expect slower growth this year than last year in EM in aggregate at just 4 per cent. 

“In the BRIC we expect growth of 6.5 per cent in China, 7.5 per cent in India, -4.3 per cent in Brazil and -2.1 per cent in Russia. In Korea growth should slow to 2.3 per cent from 2.6 per cent and in Taiwan from 0.7 per cent to 0.5 per cent,” said Herald Van Der Linde, head equity strategy — Asia-Pacific, HSBC in a recent co-authored report with Devendra Joshi and Anurag Dayal.

Analysts at Morgan Stanley also suggest that though the element of volatility has been taken out from the markets for now, it could stage a comeback going ahead. 

“In our view, the current lull in markets should not be seen as an opportunity to build cyclical stocks exposure, but rather as a chance to exit them. In India, we prefer consumption to investment sectors (we like consumer staples, healthcare and utilities),” said Jonathan F Garner, Pankaj Mataney and Yinan Zhang of Morgan Stanley in a recent co-authored report.

“We remain cautious on India. Its recent budget has created some optimism in markets. Fiscal consolidation has been applauded although we highlight that this is meant to be achieved through telecom spectrum auctions and selling government stakes in companies. Missing these targets could limit the government’s ability to spend unless it steers away from its fiscal consolidation targets. Meanwhile, the transmission of monetary policy does not seem to be functioning successfully in India. Weak business sentiment, overcapacity, stressed assets in the banking system and the slow pace of implementation of government infrastructure projects are just a few of the causes of weak credit demand,” they add.