Sensex up 400 points on upbeat global markets

Positive news from China also fuels the rally; index gains 825 points in 2 sessions

The benchmark Sensex gained 400 points for a second straight day on Wednesday, riding on a rally in global markets fuelled by optimism that China would take measures to stabilise the financial markets.

The benchmark Sensex gained 1.6 per cent, or 401.2 points, to 25,719.58, while the NSE Nifty added 1.7 per cent, or 130.35 points to 7,818.60. Both the indices have bounced back by three per cent from their 15-month lows on Monday.

Most Asian and European markets rallied two per cent, buoyed by the return of risk appetite among global investors. The Shanghai Composite Index gained 2.3 per cent, adding to near three per cent increase on Tuesday. The biggest gain, however, was seen in the Japanese market Nikkei 225 advancing 7.7 per cent, the most since October 2008.

Fears over a slowdown in China and an imminent interest rate increase by the US Federal Reserves had spooked investors away from riskier assets, triggering a sharp drop in the Indian markets. Last month, the benchmark Sensex had plunged 6.5 per cent, its biggest monthly retreat since November 2011.

“While we continue to believe that India has among the better economic fundamentals of emerging market (EM) peers and hence should continue to outperform, it may not remain completely immune from any generic risk to EM assets emanating from China’s economic re-balancing and the potential Fed lift-off,” said Abhay Laijawala and Abhishek Saraf, analysts at Deutsche Bank, in a note.

Despite the sharp rebound in the market in the past two sessions, foreign institutional investors (FIIs) continued to remain net sellers. The quantum of selling, however, was seen mitigating.

On Wednesday, foreign investors sold shares worth Rs 452 crore, while domestic investors were net buyers to the tune of Rs 1,200 crore, provisional data showed. So far this month, overseas investors have pulled out around $800 million from the Indian markets. In August, they had sold shares worth $2.5 billion.

“The turmoil in global markets has led to large outflows from emerging markets. Although strong macro-economic fundamentals makes for a compelling case for investments in Indian equities, short-term wobbles due to heightened global risk aversion due to issues plaguing China and a likely rise in US interest rates have led to continuous FII (foreign institutional investor) outflows from emerging markets with India being no exception,” said Ajay Bodke, chief executive officer (CEO) and chief portfolio manager – PMS, Prabhudas Lilladher.

Shares in the metal, automobile and banking space, which had got hammered in the recent correction, led the gains. Hindalco rose eight per cent and was the biggest gainer among Sensex companies. Vendata rallied seven per cent and Tata Steel gained 4.6 per cent.

Brokerages have started to scale back their year-end targets for the Sensex and the Nifty citing slower earnings recovery. Most brokerages, however, expect the indices to end the year at least five per cent higher from the current levels.

“If the Chinese government is able to stem the fall in their market and economy by some kind of fiscal measures, it will be a big positive for the global market,” said Andrew Holland, CEO of Ambit Investment Advisors.