Brexit deal pumps up indices; banks, NBFCS lead the rally

The benchmark indices rose by more than a per cent on Thursday, capping their longest gaining streak i n seven months, after the European Union (EU) and the UK reached a historic Brexit deal.

Most European markets and the US equity index futures rose and the pound hit a five–month high intraday, after negotiators from the UK reached an agreement with officials in Brussels that could pave the way for Britain’s departure from the EU.

The Sensex gained 1.2 per cent, or 453 points, to end at 39,052, while the Nifty added 122 points, or 1.1 per cent, to close at 11,586. Both indices have gained over 3 per cent, having risen for five consecutive trading sessions. The last time they had gained for five straight sessions was in March.

Shares of companies with ties to the UK gained the most. Tata Motors rose more than 10 per cent, the second-most in the Sensex pack, while Motherson Sumi Systems added 12 per cent and Mastek gained above 4 per cent.

Market players said the Brexit deal would help end the uncertainty for these companies.

“Most India stocks had declined a lot, and the Brexit deal has had some sentimental impact to boost investors’ confidence. Firms with exposure to Europe will benefit from the Brexit deal on the valuation front,” said G Chokkalingam, founder and managing director at Equinomics Research & Advisory.

The Indian markets have been making positive strides thanks to positive buying by foreign portfolio investors (FPIS). In the past four sessions, they have pumped in over ~10,000 crore. On Thursday, they bought shares worth ~1,159 crore, while their domestic counterparts were net sellers to the tune of ~512 crore.

Market players said that sentiment of overseas i nvestors has improved, as some of the global headwinds have receded.

“Two major concerns for the global economy have been the trade skirmishes between the US and China, and a ‘no deal Brexit’. Early indications were of a Brexit deal being finalised. This augurs well for the global economy. A US- China trade deal will also be very good news as the markets were oversold,” said V K Vijaykumar, chief investment strategist at Geojit Financial Services.

October had begun on a weak footing as investors were pulling out of equities, concerned over the health of the financial sector. Several stocks in the banking and NBFC sectors had seen huge correction.

Some of these rebounded on Thursday as investors judged recent losses as excessive.

YES Bank rose 15.2 per cent, Indusind Bank 5 per cent and State Bank of India nearly 4 per cent. Several mid-cap and small-cap stocks have gained, too, in the past few sessions. Market experts said investors’ risk appetite has improved.

“The risk-taking ability is improving, amid optimism over recovery in the economy. This is led by stimulus, festive demand, good monsoon, and a lower interest rate,” said Vinod Nair, head of research at Geojit Financial Services.