Street casts worries aside, stocks race back to the top

Benchmarks and broader market indices on Friday largely recouped their losses from earlier this week, when the markets saw their steepest crash in four years spooked by a narrower mandate for the Bharatiya Janata Party and the National Democratic Alliance in the Lok Sabha election.

Foreign investors bought cash shares after three straight days of heavy selling and closed out a large part of their bearish derivatives bets on rising hopes of political stability and economic continuity, on a day the Reserve Bank of India bumped up its economic growth forecast.

The stocks that contributed to Friday’s Sensex gains included Reliance Industries, Infosys, Mahindra and Mahindra, Bharti Airtel and HDFC Bank.

RBI, in its June monetary policy on Friday, raised its real GDP growth forecast for India in the ongoing financial year (2024–25) to 7.2% from 7% earlier. 

“Investors (mainly foreigners) who had turned sceptical post the (election) results on 4 June are buying, with clarity emerging on political stability and economic continuity,” said A. Balasubramanian, managing director and chief executive of Aditya Birla Sun Life MF. 

“And the rate cut by the European Central Bank is raising hopes among investors that the (US Federal Reserve) could follow sooner or later, resulting in a lower global rate regime, which is beneficial for spurring economic growth,” he added. 

The European Central Bank on 6 June cut its interest rates for the first time in five years, joining the central banks of Canada, Sweden and Switzerland in unwinding some of the steepest rate hikes introduced after the covid-19 pandemic, according to a Reuters report.

Bouts of jitters and pullbacks

Nirmal Jain, founder of financial services firm IIFL Group, said clarity on government formation had “soothed investor nerves”, and that the momentum would continue, although interspersed with “bouts of jitters and pullbacks”.

The 30-share BSE Sensex surged 2.29% to a fresh high of 76,693.36 points at close of trading on Friday, while the Nifty 50 hit a fresh closing high of 23,290.15 points. In intraday trading, the Nifty fell short of its life-high of 3 June by a mere 18.5 points, rising 2.18% to 23,320.20.

Also read | With political stability secured, no worry for the economy

Foreign institutional investors (FIIs) purchased a provisional 4,391.02 crore worth of shares, and closed out 94,584 outstanding short index futures (Nifty and Bank Nifty) contracts in a single session to 192,842 cumulative shorts, BSE data show. 

Domestic institutional investors booked profits as the indices reached fresh highs, selling a provisional 1,289.75 crore worth of shares. 

The BSE Smallcap 250, too, hit a fresh high of 6,508.25 points. 

Investor wealth recoups

Overall investor wealth rose by 7.69 trillion on Friday. Total investor wealth has risen by 28.81 trillion to 423.62 trillion since 4 June, when the stock market crash eroded 31.06 trillion overnight.

Retail and wealthy investors who held bullish bets on index futures, as counterparties to FIIs, booked profits by unwinding 85,892 cumulative long contracts. Unwinding means closing out the longs. 

Most of these were purchased by FIIs to close out their shorts. The recovery of the markets has come over three successive sessions following 4 June, when the Nifty and the Sensex tanked almost 6% each as the BJP’s electoral tally of 240 fell below  the Street’s expectation of 330-360.

Also read | Why the market doesn’t like the poll results

Uncertainty among foreign investors persisted until Thursday. But with members of the BJP-led NDA expressing confidence in the leadership of Narendra Modi, their sentiment about the Indian markets appears to have turned positive.

Modi is set to be sworn in as India’s prime minister for a third consecutive term, a feat not achieved since Jawaharlal Nehru in 1962.

Volatile with an upward bias

Asked which sectors would lead the current charge, Balasubramanian of Aditya Birla Sun Life MF said the information technology and fast-moving consumer goods sectors were “contra bets”, while financials and capital goods, both private and public sector units, would also perform well, although not to the extent seen till now. 

For context, the BSE PSU index has risen 10% to 20,504.08 points in the fiscal year through 7 June, while the BSE Sensex has gained 3.6%. 

“Hopes have revived that the US Fed might cut its key interest rate in September based on recent macro data points,” said Siddhartha Khemka, head-retail research, Motilal Oswal Financial Services Ltd. 

“Next week, the focus will be on allocation of key cabinet portfolios such as finance, defence, roads, energy, commerce, and Railways,” he said. “The market will continue to be volatile with upward bias.”

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