Markets bounce back ahead of RBI policy review
MUMBAI: Indian stocks staged a sharp rebound on Tuesday, with benchmark indices notching up their steepest daily gain in more than two months, as reports emerged that the Omicron strain of the coronavirus may not be as severe as expected.
The BSE Sensex ended gained 886.51 points, or 1.56%, to 57,633.65, the biggest single-day jump since September 23. The National Stock Exchange’s Nifty jumped 1.38% to 17,145.85.
Asian markets also rose sharply, with Hong Kong’s Hang Seng jumping 2.72% while Japan’s Nikkei 225 gained 1.89%.
Stocks rose amid positive global cues, according to Siddhartha Khemka, head, retail research, Motilal Oswal Financial Services Ltd. “Comments from the US stating that the new virus might be less effective than earlier feared helped elevate global sentiments. Buying was also witnessed in banking metals and auto stocks ahead of the Reserve Bank of India’s (RBI’S) announcement on interest rates,” he said.
However, Khemka said that while markets have seen some relief today, volatility is likely to remain for some more time until the selling by foreign institutional investors (FIIS) reduces. India volatility index or India VIX slumped 8%, ending at 18.46 on Tuesday. This follows a rise of 9% of India VIX on Monday. Analysts said that markets have priced in a favourable monetary policy review by the RBI and hence the recovery.
“The upmove in markets should not be attributed to the covid-related update alone. Markets are also discounting a dovish stance from the monetary policy committee (MPC) as the outcome of the meeting is scheduled on Wednesday. We expect volatility to remain high in the first half, so it’s prudent to restrict leveraged positions and wait for further clarity,” said Ajit Mishra, vice-president of research at Religare Broking Ltd. FIIS have continued to sell Indian shares worth $802 million in December so far, being net buyers of $4.73 billion equities in this year. Domestic institutional investors, including mutual funds, insurance companies, banks and pension funds, were buyers. They invested ₹8,190.02 crore in
Indian shares in December after pumping ₹30,522.02 crore in 2021 so far.
“While on-track recovery and above-target inflation make a case for policy normalization, authorities are likely to be watchful of the new risk on the horizon, the Omicron variant,” said Radhika Rao, senior Economist, DBS Bank. She expects a gradual exit from the ultra-accommodative policy settings to continue. “Taking cues from the recent liquidity management moves, policy corridor settings are due to be tweaked with a 20 basis points (bps) increase in reverse repo rate, likely to be followed by a 20 bps hike in February. Inflation risks cannot be dismissed as the moderation in September-october inflation is likely to be followed by an updrift back above 5.5-6% in Q12022, she said.