Global fund managers lean towards Indian markets.
By R. Chandrasekaran
CHENNAI: It was a complete Bulls rampage on the Indian bourses on Wednesday. No one would have imagined that the Indian stock markets will rebound so strongly after witnessing a broad sell off on Monday. What is more interesting is that Wednesday’s gain has not only erased more than Monday’s losses, but also reached highest closing in over two years.
So, what triggered this rally within a span of two days’ time? In fact, the markets were expected to be range bound with a downside bias during this week since the stocks advanced significantly in April and May and profit booking were seen. Though the stocks managed to post gains on Tuesday, it was not as significant as it is today.
If the Monday sell off was fueled by the widening of trade deficit following significant surge in gold imports, Wednesday’s bulls rampage was trigged by just one comment from the Reserve Bank of India. The central bank Governor Dr. D. Subbarao indicated that the drop in inflation would be considered while reviewing monetary policy in their next meeting in June. This is seen as a significant shift in the stand taken by the RBI and encouraged investors to shop for value and rate sensitive stocks.
There were also few other positive signs such as relaxation of regulations governing the overseas borrowing for capital requirements for short term besides the U.S. economic data.
The Bombay Stock Exchange’s 30-share barometer surged 490.67 points or 2.49 percent to close Wednesday’s trading at 20,216.96 points. This is the biggest closing after January 2011 and largest single-day gain in terms of percentage after June last year. Similarly, the National Stock Exchange’s Nifty finished the day with a gain of 151.35 points or 2.52 percent at 6,146.75 points. Nifty recorded single largest gain after September last year.
Rate sensitive stocks such as banking and automobile were in demand. This could be seen from the way private banks HDFC Bank and ICICI Bank have advanced 3.7 percent and 3.8 percent, respectively. Similarly, home lender HDFC climbed 4.5 percent, while auto stocks such as Maruti Suzuki and Tata Motors closed higher by 2.1 percent and 2.9 percent, respectively. Value stocks such as ONGC, Cipla and Hindalco have also advanced 2.5 percent, 3.1 percent and 2.7 percent, respectively.
Only on Monday, the Sensex dropped 430.65 points or 2.14 percent to 19,691.67 points, whereas the Nifty plunged 126.80 points or 2.08 percent to 5,980.45 points. The Sensex recorded the largest daily percentage drop after March 2012.
There is also a survey from Bank of America Merrill Lynch of global fund managers suggesting a shift towards Indian markets. While a net 38 percent of emerging fund managers kept overweight on India in May, a net 27 percent of them were underweight only in April. Additionally, foreign institutional investors (FIIs) have pumped in close to $13 billion in Indian equity markets so far in the current year. In May alone, FIIs have invested approximately $1.61 billion in Indian equity markets. Though these were significant indicators, the RBI comment lifted the sentiments ultimately.