Stocks rally on global cues, hopes of easing virus spread
SENTIMENT BOOST Stock markets log biggest single-day gain since May 2009
MUMBAI: Indian stock markets saw a massive rally on Tuesday, riding on optimism that the spread of the covid-19 outbreak may be slowing in a few countries. Gains in other global peers also fuelled Indian equities and raised expectations that the virus may have peaked in some of the worst-hit countries.
Indian markets surged nearly 9%, its biggest single-day gain since May 18, 2009. The Sensex ended at 30,067.21, up 2,476.26 points or 8. 97%, while t he 50-share index Nifty was at 8,792.20, up 708.40 points or 8.76%. In absolute terms, markets on Tuesday staged their biggest single-day gains ever, adding investor wealth of ₹7.89 lakh crore.
Markets in other parts of Asia such as Japan, China, Hong Kong, and Korea were up around 2% each.
Globally, equity markets responded favourably to a slowing rate of new covid-19 cases, especially in the US and Europe, according to Gaurav Dua, head, capital market strategy and investments, Sharekhan by BNP Paribas.
“The daily addition has dropped to below the 10% level in the last couple of days and is showing a flattening of the curve in hotspot countries such as Italy and Spain. However, it is too early to call out the bottom. Deep corrections usually see bounces followed by waves of selling or correction. Importantly, the news turned positive after a long time and the breath of markets improved significantly which is an encouraging change in itself,” he said.
Investors are also building expectations to see increase foreign fund flow to India if MSCI Emerging Markets i ndex increases the weightage of India.
From April 1, 2020, India moved into a new regime on foreign limits whereby the foreign portfolio investment limit has been increased. This change is an attempt to fix MSCI India’s low float compared to global markets. Given the lack of company-level foreign limit data, MSCI had decided to defer the implementation last month. However, India has now published the data to expedite this implementation.
“We estimate MSCI India’s weight in EM to rise by 55 bps and India’s FIF to rise from 0.39 to 0.42. We estimate that slightly less than a third of current constituents will see an increase in stock weights whenever MSCI considers this particular rebalancing. In our estimates, this would imply passive inflows of $1.3 billion,” said Morgan Stanley.
Foreign fund inflow is very critical to keep liquidity intact in Indian stock markets. A gush of foreign funds into equities is expected to drive the stock markets up. In 2020, foreign institutional investors (FIIS) have dumped Indian shares worth $6.60 billion with an outflow of $504.29 million in April so far. Domestic institutional investors, which were net buyers of Indian shares worth ₹75,692.7 crore in this year, have sold ₹223.80 crore in April so far. The India volatility index or VIX also dropped 5.86% ending at 52.06. This month, VIX has fallen 19.57% followed by an increase of 177.2% last month.
“While the indicators on selling intensity and price momentum have signalled a bottom, volatility and some breadth indicators have not yet confirmed this. As confirmed by record FII outflows, this bear market may have hit the point of capitulation in March 20, but this is likely to be followed by a period of apathy and lower volatility where we reach a point of investor dismay on equity investment. Such conditions have typically marked final bottoms,” said CLSA in a report on April 2.