Market rebounds after three week of losses

Sensex, Nifty gain nearly 2%; ONGC, Oil India gain on subsidy burden relief; FII buying muted

The Indian markets on Monday posted their biggest single-day gain in over a month as investors covered their short positions after three weeks of decline. Supportive global markets and favourable announcements by the government during the Finance Bill debate in the Lok Sabha had improved the investor sentiment.

The benchmark Sensex on the BSE exchange ended at 27,490.59, up 479.28 points or 1.8 per cent, the most since March 30. The 50-share Nifty on the National Stock Exchange gained 150.45 points or 1.8 per cent to 8,331.95, with only three of its components ending in losses. Most emerging markets and European shares gained as risk appetite improved with speculation that China would announce a fresh stimulus to shore up economic growth.

Foreign institutional investors (FIIs), net sellers all of last week amid concerns surrounding taxation, turned marginal buyers on Monday. By provisional data, they net-bought shares worth Rs 60 crore. FIIs had pulled out about Rs 5,000 crore from Indian equities in the previous seven trading sessions.

On Monday, oil and gas stocks led the gains, after the government said it was working on a model wherein the upstream companies such as Oil and Natural Gas Corporation (ONGC) and Oil India might not have to incur a subsidy burden. State-owned ONGC was the best-performing Sensex stock, its shares gaining nearly eight per cent. Oil India rallied seven per cent. Reliance Industries rose 3.2 per cent.

“Market sentiment has improved after the government clarified on certain important issues,” said K R Choksey, managing director at KR Choksey Securities. “Upstream companies' shares could see a major re-rating if the government goes ahead with the proposed subsidy sharing model.”

Shares of automobile companies also rallied sharply, buoyed by April sales figures. Bajaj Auto gained 7.4 per cent, while Mahindra & Mahindra rose nearly five per cent. Shares of Tata Motors ended marginally lower after the company announced closure of its Rs 7,500-crore rights offering.

 

Market experts attributed the sharp gains to value-buying after three weeks of correction, during which the benchmark indices dropped 6.5 per cent and several blue-chips by about 10 per cent. The fall, said Dipen Shah, head of private client group research, Kotak Securities, was “on concerns related to taxation on FIIs, poor quarterly results and forecasts of a sub-par monsoon. Bargain hunting led to sharp gains in stocks across sectors”.

The recent correction erased all gains made by Indian stocks during the year. On a year-to-date basis, India is among the worst-performing of major global markets. A lot of analysts are using the recent correction as an opportunity to buy Indian stocks.

A CLSA note said it was increasing India’s weightage in its Asia-Pacific (ex-Japan) portfolio by 100 basis points this week.

“Today’s rally was short covering-led. We need to see sustained buying from institutional investors if the market has to continue rallying,” said Choksey.

Following recentthe correction, Indian markets' valuations have turned favourable, say experts.

“We expect net income of the BSE-30 index to grow 17.1 per cent in 2015-16 and 18 per cent in 2016-17. The index trades at 17 times its estimated 2015-16 EPS (earnings per share) and 14.2 times the estimated 2016-17 EPS,” says a report by Kotak.