The benchmark BSE Sensex on Tuesday erased its nearly 1,000-point Budget-day loss. The 30-share index gained 917.07 points, or 2.3%, to close the day at 40,789.38 points, taking cues from a global rally and the fall in crude oil prices. It had gained 136.78 points on Monday.
At Tuesday’s high of 40,818.94, the Sensex had shot up 946.63 points (+2.37%) from Monday’s close of 39,872.31 points. On the National Stock Exchange, the broader Nifty 50 also mirrored the positive mood, closing at 11,979.65 points—271.75 points, or 2.32%, higher than the previous day’s close of 11,707.9 points. Also, at the day’s high of 11,986.15, the Nifty 50 was 278.25 points, or 2.38%, higher than Monday’s close.
Beyond the benchmark indices too, the market was in a bull zone. The S&P BSE MidCap closed higher by 209.37 points (+1.37%), while at the day’s high, the index had added 254.17 points (+1.66%). Similarly, the S&P BSE SmallCap closed 185.51 points (+1.29%) higher, while adding 203.88 points (+1.42%) at its day’s high.
Analysts are of the view that the Indian markets seem to have got over the not-too-appealing Union Budget from finance minister Nirmala Sitharaman presented over the weekend. “The stock markets appear to have shrugged off the disappointment stemming from a lack of substantial stimulus measures in the Union Budget,” says S. Hariharan, head-sales trading, Emkay Global Financial Services.
Hariharan says until Monday, positioning of foreign portfolio investors (FPIs) was tilted towards shorts—index futures net short position of $1.1 billion compared to the last six months’ average of $410 million; and single stock futures net long position of $3.3 billion compared to the last six months’ average of $4.1 billion. “This has, of course, taken place in the backdrop of global growth concerns stemming from the impact of the novel coronavirus on Chinese growth prospects,” says Hariharan. These concerns have not faded yet, and they continue to reflect in the weakness in crude oil and copper prices. “Hence, a cautious attitude towards global risk assets would dominate foreign flows,” Hariharan opines.
While FPIs did not trade on Budget day, so far this month, they were net sellers of equities worth ₹4,375.56 crore ($611.88 million) as of February 3, while today, they were net buyers in equity worth ₹1,850.57 crore ($258.53 million). Cumulatively, FPIs remain net sellers of equities, worth ₹2,433.62 crore ($340.6 million). For the whole month in January, they were net sellers of equities worth ₹11,647.95 crore ($1.63 billion), while mutual funds (MFs) were net buyers for just ₹1,052.97 crore.
S. Ranganathan, head of research at LKP Securities, also touches upon the global rally in equities, post a correction due to the novel coronavirus, which, in his view, had a positive rub-off in India today, with all sectoral indices ending in the green. “With the Budget [loss] fully digested, the drop in oil prices is a big positive for India and with expectations of MSCI flows we witnessed short covering and buying in heavyweights,” says Ranganathan.
According to Vinod Nair, head of research at Geojit Financial Services, the market witnessed a V-shaped recovery post the overreaction on the Budget day, as the expectation was too high. “This is the typical tendency of the market to over and underestimate, given its volatile trading pattern,” says Nair. “The market is focussing on the global trends and earnings growth, as Q3FY20 has provided a positive trend to earnings while the global market is positive,” Nair adds.
On the face of it, the bulls’ comeback on Tuesday seems to indicate that Budget blues are now behind us. But going forward, caution continues to be the name of the game in the markets. Emkay’s Hariharan says that domestic-oriented sectors like auto and fast-moving consumer goods (FMCG) can be expected to continue to attract investor interest, while global cyclicals like metals would continue to underperform.
While the markets will take further directions from the bi-monthly Monetary Policy Committee meeting of the Reserve Bank of India (RBI) scheduled for February 6, a major influence will be the updates on the novel coronavirus from China.