Market touches 3-month high on blue-chips' strength

Stocks rebound; FII investment crosses Rs 6,900 cr, benchmark indices up 2.6% in July

A sharp recovery in blue-chip stocks on Tuesday, including those of Reliance Indus-tries (RIL) and Sun Pharmaceutical Industries, saw the benchmark Sensex and Nifty indices to their biggest daily advance in a month.

Approval by the Rajya Sabha committee of the government Bill on a national goods and services tax (GST) also improved the sentiment.

Recovering from two days of decline, the BSE Sensex gained 322.79, or 1.15 per cent to 28,504.93, the highest close since April 16. The National Stock Exchange's Nifty closed at 8,633.50, up 104.05, or 1.2 per cent, the most since June 22.

RIL, the country’s second-highest valued firm, jumped 4.3 per cent. Sun Pharma, biggest in the sector, rose 3.4 per cent. On Tuesday, they'd fallen by close to two per cent and 15 per cent, respectively.

“Today’s rebound was on the back of sharp gains in the index heavyweights,” said Deven Choksey, managing director, KR Choksey Securities. “Most global funds and ETFs are rebalancing their portfolios in favour of India, as gold and other peers such as China and Brazil have turned unattractive.”

On Wednesday, foreign institutional investors (FIIs) net-bought shares worth Rs 450 crore, while domestic investors pulled out Rs 350 crore, provisional data showed. FIIs' India investment tally this month is now $1.1 billion (nearly Rs 7,000 crore). After pulling out close to $1 bn in June, they're again backing Indian equities, as the drop in commodity prices and a monsoon revival has increased the likelihood of further easing in monetary policy.

India on Wednesday was a standout performer among Asian markets, which fell, tracking declines on Wall Street. Global brokerage Nomura said the lifting of interest rates by the US Federal Reserve later this year is likely to prove disruptive for Asian markets. Investors will turn more selective and favour equity markets that offer good growth and with a better current account position. Nomura has its biggest overweight on India in its Asia, ex-Japan, portfolio.

In the immediate term, the market is expected to take cues from the monsoon session of parliament and the June quarter earnings announcements.

“Investors have given a long rope to India’s earnings recovery but we wonder if that will remain the case, given earnings downgrades and misses in certain expensive stocks of late. The ongoing results season looks no different from the past few. Valuations remain nonchalantly high. It now seems a tug of war between the market’s hope of an economic recovery and India’s tight textbook macro economic approach. The latter is good for the medium term but might hurt in the short term,” said Sanjeev Prasad, senior executive director & co-head at Kotak Institutional Equities.

Kotak projects Nifty earnings to grow 17.8 per cent in 2015-16 and 17.3 per cent in 2016-17.

According to Bloomberg, three of the four Sensex members that have posted results so far have beaten or matched earlier estimates. Forty per cent of the index’s 30 companies had exceeded or matched profit estimates in the March quarter, compared with 47 per cent in the December quarter and 67 per cent in the July-September period, it said.