With foreign portfolio investors (FPIs) stepping on the gas, the benchmark Sensex jumped 1,350 points to cross the 38,000 mark in the week-long rally amid strengthening of the rupee and positive global cues. FPIs who pumped Rs 17,220 crore in February invested another Rs 17,919 crore in March so far, taking the total investments since February 1 this year to over Rs 35,000 crore. On Friday, after rallying nearly 500 points in the afternoon trade, the Sensex settled 269.43 points, or 0.71 per cent, higher at 38,024.32. The NSE Nifty closed 83.60 points, or 0.74 per cent, up at 11,426.85. Nifty climbed 392 points, or 3.54 per cent, during the week.
Money flows into markets after US Fed pauses rates
The continued fund flow from foreign portfolio investors into Indian equities pushed both the major indices and currencies higher throughout the week. On Friday they invested a net of Rs 4,323 crore in the Indian capital markets pushing the Sensex to a six-month high and the rupee to a five-month high. Experts say that following the US Fed decision to pause rates, money started flowing into emerging markets and that is likely to continue. There is a sense that while uncertainty around India has diminished, there is hope in the market that there will be political stability going forward.
The 30-share index breached the 38,000-mark for the first time in six months. It had ended at 38,090.64 on September 14, 2018. Broader indices, however, ended on a mixed note, with BSE midcap ending 0.55 per cent higher and BSE smallcap slipping 0.34 per cent. On the other hand, rising for the fifth straight session, the rupee on Friday jumped 24 paise to close at 69.10 against the US dollar on sustained foreign fund inflows and heavy buying in domestic equities. On a weekly basis, the domestic currency has added 104 paise. This is also the fifth consecutive week of gain for the rupee.
Vinod Nair, Head Of Research, Geojit Financial Services, said, “the market took a breath of fresh air as geopolitical tension eased, while announcement of general election dates and opinion polls favoring the ruling party further propelled the benchmark indices to a six-month high. Additionally, global liquidity conditions have eased in the expectation of more dovish stance by the US Fed which is leading to shift of funds to high yield emerging markets.” The rally was broad based with mid and small caps witnessing strong buying interest. “This was largely due to a change in the investor’s sentiment towards high quality mid and small caps which are currently available at attractive valuation. “Among the sectoral indices, banking and finance led from the front with the gain of 6 per cent as the RBI’s new mechanism to pump additional liquidity of $ 5 billion through foreign exchange swap from banks is likely to boost loan growth,” Nair said.
The bank Nifty hit a record high amid expectations that the RBI may consider a rate cut on the back of moderation in inflation and slowdown in growth. On the other hand, global cues were mixed due to drop in Chinese export, Brexit worries, trade tensions and renewed concern on global growth.
According to Jagannadham Thunuguntla, Head of Research, Centrum Broking, during past fortnight, Indian markets enjoyed one of the best stretches in the recent memory. “FII inflows have crossed Rs 30,000 crore in Feb and March till date resulting in a flood of inflows after 2018 drought. Most heartening aspect of the current rally is that it is quite broad-based across the sectors. As border tensions appeared to have cooled off and global central bankers turned pro-liquidity, Indian markets are in risk-on mood,” he said.
However, analysts warned that investors should be careful in stock selection as it’s very easy to get carried away when the momentum is so strong. Investors should stay away from companies with high debt and high promoter share pledge, said an analyst.
According to analysts, currently, the market is giving more focus to domestic businesses on expectation of improvement in future outlook with revival in sectors like cement, infra, consumption and bank from FY20. “Probability of a stable government formation at the centre and the inflation below the RBI’s target has increased the scope for a rate cut in the near term,” Nair said.