Sensex erases Brexit losses

Index clocks weekly gain of 2.8% or 742 pts

IN a strong comeback, Indian benchmark indices rallied close to 3% in the last five trading sessions, erasing the steep fall posted last Friday after Britain had voted in favour of pulling out of the European Union.

The Sensex closed at 27,144.91 on Friday, up 742.2 points or 2.82% compared with the previous week's closing. The Nifty Fifty gained 239.75 points or 2.9% during the week. This is the highest closing for both the Sensex and the Nifty in 2016, Bloomberg data showed.

This rally in the Indian markets is in line with those of other Asian markets. All the major Asian indices barring Hang Seng gained in the range of 2.5%-4.8%. While China's Shanghai Composite went up by 2.74%, South Korea's Kospi gained 3.2% during the week.

According to market participants, the rally was due to several domestic developments, including the Cabinet's nod for the 7th Pay Commission recommendations, a pick-up in rainfall across the country and the stable macroeconomic environment. “Except for the day of the outcome, Indian markets remained positive, which means markets have already factored in any distress emerging from Britain or the EU,” Vinay Khattar, VP & head of research, Edelweiss Broking, observed.

Shares of auto, realty and consumer durable companies rallied since Wednesday after the Cabinet had approved the recommendations of the 7th Pay Commission. While the BSE Realty index gained 8.4%, the BSE Auto index climbed 3.16%. The sectoral index for consumer durables in the BSE closed 4% higher, data showed.

According to global investment banking firm Deutsche, although Indian markets are not completely insulated from the global impact of Brexit, they are expected to perform better than their EM peers on account of improving rainfall, positive traction in several high-frequency indicators and continuing positive action from the gover nment.

“While the exter nal environment may stay volatile in the near term (particularly the high beta portfolio flows), we believe that the domestic situation is showing strong signs of improvement. A continuing domestic recovery and the government continuing to deliver on its reforms agenda could emerge as the most determining factors for the outperformance of Indian equity markets. Rising composition of FDI in the balance of payments insulates India with FDI inflows being more than sufficient to finance the CAD,” Deutsche said in a note to investors.

Foreign portfolio investors (FPIs) continue to be net buyers in the Indian markets. During the week, foreign funds bought equities worth $144 million, Bloomberg data showed. So far in the calendar 2016, overseas funds have pumped in $2.73 billion into Indian markets.

On the other hand, domestic institutional investors (DIIs) purchased equities worth Rs 600.7 crore in the last five sessions, data showed.