Stocks surge but weak rupee, costly oil weigh
MUMBAI: Stocks witnessed a strong relief rally on Tuesday, aided by short-covering, a slight respite in foreign investors’ selling and improved global cues. However, analysts expect the rally to be short-lived, as high inflation, steep crude prices and a weak rupee put pressure on corporate earnings.
The Sensex and Nifty ended the day with gains of 2.54% and 2.63%, closing 1,344.63 points and 417 points higher at 54,318.47 and 16,259.30, respectively. The gains were supported by metals, oil & gas and a few other sectors, with the BSE metals index surging 7.62%. Others such as basic materials, oil & gas, energy, telecom, industrials and capital goods indexes saw gains of more than 3%.
Shrikant Chouhan, head of equity research (retail) at Kotak Securities Ltd, said the markets witnessed a sharp relief rally as the recent slump had put key indices in oversold territory. Traders covered their short positions in several beaten-down stocks, propelling key benchmarks. Positive cues on China in terms of opening up its economy were supportive as well, analysts said. Asian indices such as Nikkei, Jakarta Composite, Shanghai Composite and Hang Seng ended 0.42-3.27% higher.
“A sharp uptick in the market was propelled by short-covering seen in several large-caps and especially in sectors like metals which were deeply oversold,” said Siddhartha Khemka, head of retail research at Motilal Oswal Financial Services Ltd. Foreign institutional investors (FIIs), too, have slowed their pace of selling, he added.
FIIs, which have been net sellers of equities worth ₹1,54,159.83 crore in 2022 till May 16, were net sellers of ₹2,192 crore worth of equities on Tuesday as per provisional data from exchanges. However, the rally could be short-lived, and volatility may stay, as high inflation, costly crude oil and a rupee at record lows add to market concerns. Data released on Tuesday showed steep wholesale price inflation of 15.08% in April, driven by a rise in prices across the board, with manufactured products and fuel and power leading the charge. This is expected to pressure corporate earnings growth as well.
“Higher energy and metals prices due to supply-side bottlenecks have added to the input cost pressures for domestic producers. As inflation is primarily supply-driven, we expect upward price pressures to persist in the near term,” said Rajani Sinha, chief economist at CARE Ratings. The rupee opened at an all-time low against the dollar on Tuesday. Disappointing Chinese economic data, further clarity on US Federal Reserve & ECB rate hikes, rising crude oil prices, and a correction in the domestic equity markets have led to the rupee depreciation, said analysts. “USD-INR spot scored a new high at 77.78 but closed off its high at 77.56. A new high and then suspected intervention from RBI and USD-INR drifting down towards unchanged levels has been the pattern over the last few trading sessions,” said Anindya Banerjee, vice-president, currency & interest rate derivatives at Kotak Securities.