Banking shares push Indian markets higher

Optimism over new NPA policy takes banking index to new high; ICICI Bank up 9.2% in single session

The rally in the banking stocks has pushed Indian benchmarks higher on Thursday. While the Nifty closed at 9,359, up 47.9 points or 0.5 per cent, the Sensex gained 231.4 points or 0.8 per cent to close at 30,126. This is a new record high closing for Nifty. On the other hand, the Sensex is 0.8 per cent short of touching a new high. Even the broader markets echoed a similar trend with both the midcap and small indices closing 0.5 per cent and 0.36 per cent higher respectively.

The banking stocks had rallied on the back of optimism about government's decision to bring an ordinance to empower the Reserve Bank to effectively deal with bad loans. Shares of ICICI Bank rallied 9.2 per cent to end as the biggest gainer among the Sensex companies. Shares of Axis Bank and SBI closed 3.6 per cent and 3.2 per cent higher respectively. The BSE Bankex, a gauge of banking stocks, soared 2.3 per cent to close at a new high of 25,831.

"Government is one step closer to new non-performing assets (NPA) policy. Banks are in sweet spot due to new framework to deal with NPA and better quarter results. FED kept the rates on hold amid slow pace in economic growth but the market is not expecting any deviation from two more hikes in this calendar," said Vinod Nair, head of research, Geojit Financial Services.

Meanwhile, foreign portfolio investors (FPIs) sold shares worth a net Rs 601.1 crore on Thursday while the domestic institutions purchased shares worth Rs 926 crore, provisional data from the stock exchanges showed.

The recent leg of rally in the Indian equities has largely been on account of strong FPI flows. The overseas funds have purchased equities worth $6.2 billion from the Indian markets during the fiscal so far. Not just Indian markets, all the emerging markets have witnessed decent foreign flows during 2017. While South Korea was a overseas fund buying to a tune of $8 billion, Mexico saws flows worth $9.5 billion.

"Flows into EM equity funds revived from March 2016 and have continued to recover ever since. EM flow recovery has come largely at the expense of European funds which saw large outflows between February and December 2016, and are beginning to see some trickles of flows only recently," said Manishi Raychaudhuri, Asia Equity Strategist, BNP Paribas. He added that the buoyancy in the EM flows would continue in the near to medium term.

On Thursday, all the major global markets were also trading higher with the major European indices going up in the range of 0.5 per cent to 2 per cent. This positive mood in the European markets is on hopes of a favourable outcome from the French elections. Experts say, victory of centrist presidential candidate Emmanuel Macron could over the right wing opponent Marine Le Pen ahead allay the concerns of investors about a Brexit like fallout in France.