FIIs resume purchases ignoring Fed taper call

Foreign institutional investors bought net shares worth Rs 990 crore on Friday

Stock markets surged on Friday as continued foreign institutional purchases even after the US Federal Reserve’s stimulus rollback announcement on Wednesday alleviated fears about inflows drying up.

Shares of software exporters led the Dalal Street rebound after the decline on Thursday as the Fed move boosted expectations of a sharper recovery in the US. Sentiment also received a boost after Accenture said it expected its consulting business to turnaround this financial year.

Reliance Industries also aided the surge in the indices’ after the government on Thursday evening allowed the company to charge higher gas prices from April.

Foreign institutional investors (FIIs) bought net shares worth Rs 990 crore on Friday, according to provisional data, after pouring in about Rs2,200 crore the previous day. Investors are relieved that FII inflows have not slowed down in contrast to an earlier concern that the Fed’s tapering of the bond buying programme-Quantitative Easing (QE)- would dry up buying.

"The rally today shows markets are convinced that India is better prepared to deal with the QE tapering than some months ago. The strong FII figures on Thursday also relieved the market," said Rajesh Cheruvu, chief investment officer, RBS Private Banking.

BSE’s Sensex rose 371.10 points or 1.79% to close at 21079.72. NSE’s Nifty gained 111.25 points or 1.80% to close at 6,277.90. The US central bank said on Wednesday night it will cut its monthly $85-billion-bond buying programme by $10 billion a month starting January, sparking a moderate sell-off in Indian stocks on Friday.

NSE’s IT index rose 1.7% with Infosys shares gaining 1.1% and Wipro surging 3.6%.

"The QE tapering announcement has sent a signal that the US economy is strengthening. This has improved the outlook for IT stocks," said Cheruvu.

The rupee snapped its three-session losing spree on Friday partly led by FII flows into stocks. The rupee closed at 62.04 to the dollar on Friday after opening weak at 62.41/dollar as compared to previous close of 62.12.

Brokers and analysts warn against reading too much into the market strength on Friday as the rally was also aided by short covering. Volatility is expected to heighten in the week ahead with the December futures and options series set to expire on Thursday.

But, NSE’s Volatility Index (VIX), a key sentiment indicator, is pointing to a smoother sailing in the near-term. It slipped 3.4% to 16 on Friday over the previous day. The drop in this gauge, which measures the market’s expectations of near-term risks based on options prices, shows traders expect fewer risks in the market.