Five aspects of the ongoing stock rally

In the past five sessions, FIIs bought in shares worth less than Rs 1,100 cr in cash segment

The Indian market has risen nearly six per cent in five sessions, longest winning streak in three months. The sharp rally has seen the benchmark Sensex add almost 1,500 points, from 25,230 to 26,726. Given the market volatility, such spikes are not surprising. However, the ongoing rally is unique in many ways. Here’s a list of five unconventional aspects about the latest surge

FOREIGN FLOWS RELATIVELY MUTED
In the past five sessions, foreign institutional investors (FIIs) have bought shares worth about Rs 1,100 crore in the cash segment. It is relatively muted when compared to previous risk-on trades. For instance, average daily FII buying in March, when the market surged 10 per cent, was about Rs 1,300 crore.

DOLLAR GAINS ALONG WITH EQUITIES
Emerging market currencies are on course for their worst monthly decline against the dollar since August 2015. Typically, most global currencies strengthen against the dollar whenever risky assets, including equities, rally and vice versa. The logic is that during risk-on bets, money flows out of safe-haven investments such as US bonds and moves to equities, hurting demand for the dollar. In the past week, the dollar and the equity markets largely moved together. The rupee, however, saw appreciation of only 0.8 per cent during this period.

DOMESTIC FACTOR-LED RALLY
Global factors, particularly fading hopes of a rate increase by the US Federal Reserve in June, have aided the rally. And, domestic factors such as expectation of a good monsoon and reforms, early signs of recovery in the economy and corporate earnings have given bulls extra strength. After considerable gap, multiple positive factors domestically have contributed to an upsurge.

INDIA PIPS OTHER MARKETS
The Indian market has outperformed almost all major factors in these five sessions. Positive domestic triggers and appreciation in the rupee, even as other currencies have tumbled against the dollar, led to the outperformance. Also, strong buying by domestic institutional investors (DIIs) has buoyed stock prices. In the past five sessions, DII buying is nearly double that of FIIs. Note that the Indian market had been an underperformer in recent global rallies.

POSITIVE RESULTS TRIGGER SHORT-COVERING
Several blue-chip companies, including Larsen & Tourbo, ITC, State Bank of India, Tech Mahindra and Bosch, were able to deliver positive earnings surprise last week. The robust earnings not only provided a sentiment booster for the markets but also triggered a huge short-covering. Ahead of last week’s rally, most traders held short-positions in anticipation of a fall. Positive results coupled with other favourable macroeconomic factors forced traders to cover their shorts.