Mumbai: A global relief rally fuelled by hopes of a Chinese government’s stimulus, coupled with hopes of a better monsoon performance, a strengthening rupee and push for domestic reforms buoyed Indian equity markets to gain around two percent during the week just-concluded. The barometer 30-scrip sensitive index (Sensex) of the S&P Bombay Stock Exchange (BSE) gained by 408.31 points or 1.62 percent in the weekly trade ended September 11.
The Sensex ended the week at 25,610.21 points from its 25,201.90 points closing on September 4. The wider 50-scrip Nifty of the National Stock Exchange (NSE) rose by 134.25 points or 1.72 percent at 7,789.30 points. Analysts cited that a global rally sponsored by the Chinese government’s reforms and expected stimulus, in addition to positive cues from the US and European markets, restored investor confidence.
“In absence of any major domestic trigger, markets continued to look towards global cues. The benchmarks traded in a narrow range this week led by cautiousness ahead of the US interest rate hike,” Vaibhav Agrawal, vice president, research, Angel Broking elaborated to IANS. “The comments from the Chinese Premier helped sooth nerves.”
The Chinese government boosted investor confidence the world over by initiating a string of reforms aimed at curbing stock market volatility and encouraging long-term investments. There were also expectations of a new stimulus package in China.
“The Chinese are implementing reforms that will encourage long term investments in stock markets by waving taxes and installing a circuit breaker systems to curb volatility in the stock markets,” Anand James, co-head, technical research desk with Geojit BNP Paribas Financial Services told IANS. “The reforms and expectations of a stimulus started the global relief rally, which was supported by the US markets. However, with the fast approaching date for the US rate hike decision fizzled out the rally.”
Interestingly, the continuous slide in the Chinese markets had spooked global investors and dampened Indian equities on fear of another recession – caused by the slowdown – in the $10 trillion economy. The massive implosion in the Chinese markets, by some estimates, has eroded 40-45 percent of its entire stock value. This, coupled with the devaluation of the yuan and lower factory output, signals an impending slowdown.
Market observers elaborated that the Indian rally was also supported by the recent cabinet’s decisions, the prime minister’s message to increase industry’s investments, the upcoming Seventh Pay Commission and cooling oil prices.
“Sentiment was boosted by the prime minister’s meeting with India Inc, key decisions taken by the cabinet and lower-level buying and short covering helping the indices register gains,” said Gaurav Jain, director with Hem Securities. “Key decisions taken by the cabinet to boost the economy like spectrum trading norms, gold monetisation schemes, improving commodity prices and short-covering boosted sentiments,” Jain elaborated to IANS.
Prime Minister Narendra Modi held a high level consultative meeting on ‘Recent Global Events: Opportunities for India’ here on September 8. On September 9, the cabinet also gave positive signs on the reforms front, especially on the passage of the goods and services tax (GST) bill. The cabinet’s approval of spectrum trading, gold bonds and hike in dearness allowance for centrral government employees and pensioners buoyed Indian equity markets. Furthermore, the Bank of England’s decision to continue with its “easy monetary policy” and the clarification by the Met department that it had not lowered its long-period average rainfall projections supported the markets.
The rupee recovered from its two-year low of 66.86 against the greenback on September 7. It closed the week at 66.54 to a US dollar. However, going forward, the currency and equities markets can be pulled down as investors became anxious about the heightened chances of the US Fed opting for an interest rate hike after a decade or so of an easy monetary regime.
“Volatility will persist until the Federal Open Market Committee (FOMC) decision becomes clear. More important is the language that the Fed is going to use. A dovish one will support a recovery in rupee and equities. This could be a sustaining recovery,” Anindya Banerjee, associate vice president for currency derivatives with Kotak Securities, told IANS. “The recovery can be as strong as taking rupee to 64-levels. However, a hawkish outlook will heighten the chances of a rate hike in December.”
The US Fed will decided on whether or not to raise interest rates at the FOMC meeting slated for September 16-17. High interest rates in the US are expected to lead away the foreign portfolio investors (FPIs) from emerging markets like India. It is also expected to dent business margins as access to capital from the US will become expensive. It is estimated that the foreign funds and investors have sold around $3 billion since August.