Sensex rebounds from 15-month lows

Late surge in China in Chinese equities sparks rally in global stocks

On Tuesday, the Indian stock market rebounded sharply from its 15-month lows, following a late rally in Chinese stocks which boosted investor sentiment globally. Most global markets rallied, defying weak trade data from China, on hope that the country would help ease the turmoil in its market. Risker assets such as emerging market equities, currencies, crude oil and industrial metals gained for the first time in three days.

The BSE Sensex closed at 25,317.87, up 424.06 points, or 1.7 per cent, the biggest single-day gain this month. The National Stock Exchange Nifty gained 129.45 points, or 1.71 per cent, at 7,688.25. China’s benchmark Shanghai Composite Index ended three per cent higher, recovering from a loss of 2.3 per cent, buoyed by state support.

“It is very difficult to call a bottom for any market. But I am most bullish on the Indian market at this juncture. We haven’t revised our year-end Nifty target of 10,000. If the Chinese government is able to stem the fall in its market and economy by some kind of fiscal measures, it will be a big positive for the global market,” said Andrew Holland, chief executive of Ambit Investment Advisors.

Beaten-down stocks in banking and commodities led the rally on Tuesday. Among Sensex stocks, GAIL was the biggest gainer (6.5 per cent), followed by Tata Steel (six per cent) and Axis Bank (5.1 per cent). Market players said domestic institutions and high net worth individuals were among the major buyers; this was partly attributed to short-covering.     

The gains were also on hope that the Narendra Modi-led government would take steps to spur economic growth.

Foreign institutional investors (FIIs) continued to pull money out of the Indian markets. According to provisional data, FIIs net-sold shares worth Rs 660 crore on Tuesday. So far this month, foreign investors have pulled out $700 billion from the Indian market. In August, they sold shares worth about $2.5 billion.

“The selling by FIIs isn’t restricted to our markets. In the past, India has received huge foreign flows. If there is risk-off sentiment abroad, investors have to take money off heavily-invested markets,” said Holland.

The Indian market is down about 10 per cent since August 8, when China first devalued its currency. Following this, valuations of the Indian market have come down to reasonable levels, say experts.In a note, Bank of America Merrill Lynch said the Indian market’s equity valuations had “moderated”. It said in terms of a one-year forward price-to-earnings multiple, the Sensex traded at 15.8, still above its long-term average of 14.5. Experts believe stability in the Chinese market and the rupee is vital to stemming the FII outflow.