Sensex rises 1.4% as public sector bank stocks rally

The Indian markets rebounded on Monday due to the easing of global trade tensions and heavy buying in banking stocks. Investors took comfort from the global movement, with most Asian markets closing with gains, European markets opening in the black and the futures market pointing to a strong opening on Wall Street as fears of a trade war between the US and China eased.

The Sensex gained 470 points, or 1.4 per cent, to close at 33,066. The Nifty rose 132.6 points, or 1.3 per cent, to 10,130. The Nifty had closed below 10,000 for the first time in nearly six months on Friday.

Public sector banks gained the most on Monday with the Nifty PSU Bank index rising 4.94 per cent, and the Nifty Bank index advancing 2.42 per cent.

Monday’s rally comes as a relief for the Indian markets, which faced heavy selling pressure since February.

The benchmark indices are down nearly 10 per cent from their record highs reached in January, making India one of the worst-performing markets globally.

According to Bank of America Merrill Lynch, India’s recent underperformance compared to its emerging market peers is on account of several factors, including deteriorating macro-economic fundamentals, fraud in public sector banks, introduction of the long-term capital gains tax on equities and political uncertainty surrounding the 2019 general elections.

“None of these will change soon. With valuations and earnings expectations still high, Indian equities could continue to struggle for the next few months,” BoAML analysts Sanjay Mookim and Nafeesa Gupta said in a note. The brokerage has set a year-end target for the Sensex at 32,000, 3 per cent lower than its current level.

Market experts also said technical reasons aidedMonday’s rally. “Bargain hunting combined with short covering helped the index move higher,” said Jayant Manglik, president, Religare Broking. “Short covering in banking stocks supported gains,” said Vinod Nair, head of research, Geojit Financial Services. The markets were likely to remain volatile amid expiry of March series derivatives contracts on Wednesday, experts said. According to market participants, March-quarter earnings were likely to be the next important trigger for Indian equities, followed by the monsoon forecast.

Foreign portfolio investors (FPIs) remained net sellers to the tune of ~7.41 billion, while domestic institutions emerged strong buyers, investing ~20.17 billion on Monday. Banking heavyweights, HDFC, HDFC Bank and State Bank of India, accounted for half of the gains made by the Sensex. SBI shares closed 5 per cent higher, while shares of HDFC Bank and HDFC rallied 2.9 per cent and 2.6 per cent, respectively. YES Bank shares gained the most among Sensex companies (5.7 per cent).

Even the broader markets remained positive with the BSE Midcap and BSE Smallcap indices gaining 1.2 per cent and 0.7 per cent, respectively. Banking shares, especially the state-owned ones, have been under selling pressure ever since the $2-billion alleged fraud at Punjab National Bank (PNB) surfaced. The BSE Bankex is still 12 per cent down from its January peak.