FII flows help Indian equities extend gains

Indian equities extended their rally a day after posting their third straight week of gains as lower oil prices improved the outlook for the economy and corporate profits. The NSE Nifty 50 Index closed above its 200-day moving average for the first time since October 3. The Sensex climbed 318 points to 35,774.88 on Monday.

Equities extended a rally a day after posting its third straight weekly gains as lower oil prices improved the outlook for the economy and corporate profits. The NSE Nifty 50 Index closed above its 200-day moving average for the first time since October 3.

The benchmark S&P BSE Sensex Index surged 318 points, or 0.9 per cent, to end at 35,774.88, led by Yes Bank’s 7.2 per cent rebound after a threeday drop. The NSE Nifty 50 Index gained 0.8 per cent, or 81 points, to end at 10,763.4.

The Sensex and Nifty have rebounded more than seven per cent in the past three weeks as profits at the top 50 Indian companies mostly met or topped analyst estimates. Crude oil — the country’s biggest import — has retreated from a four-year high, easing concerns about a strain on India’s trade account and company profits.

Reversal in foreign outflows also has provided stability to the stock market, said experts.

"Strong rupee and fall in oil prices provide leeway to India macros, and consequently influence foreign institutions to change their stance towards emerging markets," said Vinod Nair, head of research, Geojit Financial Services.

On Monday, foreign institutional investors (FIIs) bought shares worth ~11 billion, taking their month-to-date buying tally to ~53 billion.

“It’s a good time to buy stocks as economic factors are improving and the fundamentals are getting stronger,” said Vivek Ranjan Misra, head of equity research at Karvy Stock Broking. “We expect earnings to improve in the second half of this financial year, and see an average increase of as much as 18 per cent in the profits at Nifty companies in financial year 2019,” he said.

Earnings for July to September beat or topped analyst estimates at 28 of the 50 Nifty firms during the reporting period ended last week. They are expected to increase at least 20 per cent annually through the financial year ending March 2020, compared with 16 per cent growth in financial year 2018, according to data compiled by Bloomberg.

Eighteen of the 19 sector indexes were compiled by BSE advanced, led by a gauge of property stocks. The NSE Volatility Index rose 4.9 per cent, halting a two-day decline.

Experts said the drop in oil prices had significantly eased the macroeconomic headwinds for India.

"India's macroeconomic position appears to have stabilized, with crude prices slipping to below $70 per barrel. We see stable rupee and interest rates and a manageable fiscal position over the next few months if crude oil prices were to remain below $75 per barrel," said Sanjeev Prasad, managing director and co-head, Kotak Institutional Equities.

However, Prasad said the Indian market valuations were still on the higher side despite the correction. “Also, the valuations already factor in 15 per cent and 26 per cent growth in net profits of the Nifty-50 Index for FY2019 and FY2020, respectively. We find decent value in a few sectors and stocks in financials, energy, metals & mining and power utilities but do not find value in the “quality” stocks. Also, it remains to be seen the high multiples will hold up in the event of tighter global monetary conditiosn and higher bond yields,” Prasad said.