Easing commodity prices, strong monsoon lift stocks

Falling crude oil prices with around 15-16 per cent slide from recent highs and progress of monsoon with deficit down sharply aided recovery in the equity market this week as Sensex and Nifty registered weekly gains of over 2.6 per cent each after last week's sharp fall.

The Nifty-50 gained 2.65 per cent rising to 15,699.25 from last Friday's 52 week low close at 15,293.50.

The Sensex too gained 2.66 per cent rising to 52,727.97 from last Friday's close at 51,360.42.

The broader market also recovered with the BSE Mid-cap Index up 2.38 per cent and Small-cap up by 1.60 per cent.

"There has been some moderation in oil prices of about 15 per cent in the last two weeks on account of high crude prices and the adverse impact on demand, and the estimates of an economic recession. The most crucial level for Brent is the $106-USD 107 levels, as a break of these levels could see the prices edging lower," said Emkay Global Financial Services.

"The recent correction in the prices of several commodities, especially industrial metals, is providing some light at the end of the tunnel with hopes of some of the inflationary pressures easing out. The combination of softening inflation (aided by a possible easing of supply shocks) and a weakening economy can put the global central banks on some sort of a back foot and go less hawkish in their tightening cycle going ahead, which will be supportive of equities," said Milind Muchhala, executive director, Julius Baer India.

"As new inflation and growth dynamics unfold, markets are expected to remain in a consolidation phase," said Hemant Kanawala, head-equity, Kotak Mahindra Life Insurance.

Monsoon rains were per cent higher than normal during the last week for the country as a whole which helped reduce the season's deficit to nil from 32 per cent reported last week by the Indian Meteorological Department.

The Indian market moved up mainly on domestic institutions and retail buying during the week as foreign portfolio investors remained net sellers. On Friday too, FPIs were net sellers by Rs 2,353.77 crore while the domestic institutions were net buyers by Rs 2,213.44 crore.

But analysts are hopeful of FPIs returning to the Indian market as their risk appetite improves.

"While FPIs have been big sellers in the Indian markets in the past few months (one of the longest stretches of selling since the global financial crisis of 2008-09), a case of the winner's curse due to its strong outperformance, India will continue to remain an attractive investment destination once the risk appetite improves," Muchhala said.