Sensex up 516 pts on global rally

Global stocks recover on positive China signs; India shares bought on hopes the country will benefit from China slowdown

The Indian markets on Thursday rallied two per cent — second-biggest gain of 2015 — after China stocks ended their five-day losing run, during which their benchmark gauge fell 25 per cent. Most Asian and European markets too saw a sharp rally, after Wall Street’s biggest gain in four years on Wednesday.

The U-turn in investor sentiment was sparked by hopes that US Federal Reserve might not raise interest rates in September to ease the financial market turmoil, which has wiped out trillions of dollars from world market capitalisation.

Rebounding from its one-year lows, the benchmark Sensex closed at 26,231.19, up 516.53 points, or 2.01 per cent, most since January 15, 2015. The NSE Nifty 7,949, up 157.1 points, or 2.02 per cent. Among index stocks, HDFC rallied the most at 8.4 per cent, followed by Vedanta at 6.5 per cent and Tata Steel at 4.8 per cent.

Taking advantage of the recent fall, domestic investors were seen buying beaten-down shares, even as overseas investors continued to take money off the table. As per provisional data, foreign institutional investors (FIIs) sold shares worth Rs 3,347 crore, while their domestic counter parts pumped in nearly Rs 2,600 crore.

FIIs have pulled out over Rs 13,000 crore from Indian equities, while the Sensex is down 1,135 points, or 4.1 per cent so far this week.

“The sell-off in the markets has been indiscriminate, leading to correction across the board. This means that even companies that are potential beneficiaries of lower commodity prices and currency have seen significant share price corrections,” said Prabhat Awasthi, managing director and head of equity at Nomura India, in a note.

Awasthi said India benefited from cheaper commodity prices, which improve balance of payments and lead to lower inflation.

Market players are pinning hopes that the financial market turmoil and drop in global commodity prices will spring the government into action.

“We believe global turmoil will nudge the government to move quicker on next generation reforms in land, labour, power distribution and overall ease of doing business,” said HDFC Securities in a note. Jayant Manglik, president-retail distribution, Religare Securities, added, “Sentiment was upbeat on report of India Ratings that the significant improvement in indirect tax collections and considerable decline in crude oil has paved the way for the government to make additional investment in infra projects or bank recapitalisation schemes, without hurting its fiscal deficit target.”

Analysts said this week’s fall in the market has provided valuation comfort to investors.

“Following recent price correction, the Sensex P/E multiple has corrected to 14.8 times one-year forward earnings, which is at a 10 per cent discount to its five-year average,” said the Nomura note.