Markets roar back after Budget shock

Oil fall, global rally help recoup Budget-day losses; indices jump most since Sept; rupee gains 13 paise against dollar

Asharp drop in crude oil prices, coupled with a rally in global equities, propelled the domestic market on Tuesday, helping the benchmark indices close at levels seen before the Union Budget.

The Sensex soared 917 points, or 2.30 per cent, to end at 40,790, while the Nifty50 index rose 272 points, or 2.32 per cent, to close at 11,980. Both the indices logged their biggest single-day gains since September. The Sensex had ended at 39,735 on Saturday, following the worst sell-off in three years as investors dumped equities due to Budget disappointment.

The rupee moved up by 13 paise to close at 71.25 against the US dollar as forex market participants gauged improved sentiment in global markets amid efforts to contain deadly coronavirus.

Market players said investors resorted to buying on hopes that the fall in crude oil prices would provide macro stability. Also, investor appetite for risk assets showed an improvement after the sell-off in the China market halted.

Foreign portfolio investors (FPIS) were net buyers to the tune of ~366 crore, reversing some of the recent outflows. In the past one week, the domestic market has seen a sharp pullback from FPIS amid the coronavirus outbreak. Domestic institutional investors (DIIS) remained strong buyers for a second day in a row. On Tuesday, DIIS bought shares worth ~600 crore, adding to their ~1,300crore buying tally a day earlier.

Besides improvement in the global situation, the slew of incentives announced in the Budget should help improve overseas investor sentiment, said experts.

Following a sharp drop in the past few sessions, Brent crude was trading near the $54 a barrel level.

Any fall in the price of crude oil, India’s biggest import, is advantageous for India. Every $10 rise in crude oil pushes the headline consumer price index inflation by 0.4 percentage points, say economists.

The latest fall in oil prices is due to worries about a slowdown in China, the world’s largest importer of the commodity.

The nation accounts for 14 per cent of global crude demand. Economists are forecasting a sharp deceleration in Chinese economy over the next few quarters due to the virus outbreak.

China’s central bank is making efforts to calm investor concerns after a record $700 billion wipeout in market capitalisation on Monday.

According to reports, the People’s Bank of China (PBOC) injected 1.2 trillion yuan ($173.81 billion) into money markets through reverse bond repurchase agreements. It also unexpectedly cut the interest rate on those short-term funding facilities by 10 basis points.

“Indian markets are very correlated to global markets, and today’s rally was a reaction to China’s efforts to pump liquidity into the system. Going forward, the pace of economic recovery in India and how strong it will be an important determinant of the market,” said Jyotivardhan Jaipuria, founder, Valentis Advisors.

Positive manufacturing sector data also helped investor sentiment. The manufacturing Purchasing Managers’ Index (PMI) for India shot up to an eight-year high at 55.3 in January from 52.7 in December, the data released on Monday showed.

Some experts said the latest rebound in the market could be on account of shortcovering and investors needed to be cautious.

“It will be a highly polarized market; the Indian economy is now skewed in favour of companies which have high cash flows. The banking and NBFC system no longer in a position to finance the growth of our companies which have strong cash positions will be able to take advantage to grow further and faster. And the bulk of the stock market flows being attracted by these large companies,” Saurabh Mulkherjea, founder, Marcellus Investment Managers.

Consumer durables and metal stocks rose the most, with their sectoral indices gaining 3.5 per cent and 3.3 per cent, respectively. Among the Sensex components, Titan gained the most at 7.5 per cent, on account of the strong recovery for a jewellery business in the third quarter and strong outlook for the quarter ended March. ITC and HDFC were the best-performing Sensex stocks, gaining 3.9 per cent and 3.8 per cent, respectively.