Stocks surge 2.5% as global rout eases

Relief rally sees Sensex, Nifty post biggest single-day jump in a year

Indian markets on Monday posted their biggest one-day gain in over a year after the global rout, responsible for last week’s seven per cent fall, eased. Oil prices rallied, while safe haven gold prices retreated as risk appetite improved following a jump in China’s yuan improved outlook towards the nation’s economy.

The benchmark Sensex and Nifty jumped 2.5 per cent — the most since January 2015 — led by gains in shares of banking and metal companies.  

The BSE Sensex gained 568 points (2.47 per cent) to end at 23,554.12, while the Nifty rallied 182 points (2.61 per cent) to 7,162.95. The BSE Metal index soared 8.8 per cent and the BSE Banking index surged around four per cent.

Following the rally, market capitalisation of BSE-listed firms went up by Rs 2.52 lakh crore to Rs 88.6 lakh crore.

Most Asian markets ended with gains after the Chinese central bank’s governor expressed faith in the economy. European markets were headed for the biggest two-day gains in four years on hopes of a stimulus from the European Central Bank.

Experts said the sharp spurt in the domestic market could be because of a short covering and raised doubts over the sustainability of the rally, as situation remains weak.

“The situation remains the same. Our banking system is in trouble. Corporate earnings growth hasn't happened for year and a half now. Reformist policy measures by the government seem to be few and far between. The road to recovery for the Sensex will be long and hard as it is difficult to see how the risk will mitigate materially so soon,” said Saurabh Mukherjea, chief executive officer (CEO), Institutional Equities, Ambit Capital.

“It’s good to see a relief rally, however, fundamentals haven’t changed in 48 hours to warrant a sustained rally,” he added. Brokers said many traders were forced to cover their short positions, which caused stocks to go up further.

Despite the spurt, overseas investors continued with their selling spree. According to provisional figures, foreign institutional investors (FIIs) were net sellers to the tune of Rs 1,311 crore, while domestic institutions bought shares worth about Rs 2,000 crore.

Among the Sensex companies, Tata Steel was the biggest gainer at 13 per cent, followed by Larsen & Toubro (nine per cent) and State Bank of India (eight per cent). Last week, Tata Steel was down seven per cent, L&T had declined 7.5 per cent and SBI had lost eight per cent.

Shares like Bharti Airtel, which had escaped last week's carnage, lost two per cent on Monday.

“Though it was broad-based recovery, interestingly, all the underperforming sectors such as PSU (public sector undertaking) banks, metal and realty gained the maximum. Perhaps, short covering in these sectors helped them post such gains,” said Jayant Manglik, president- retail distribution, Religare Securities.

“No doubt, the rebound was sharp and steady, but reversal doesn’t happen overnight.” Last week, benchmark indices had posted their biggest weekly fall since 2009 on fears of a global slowdown and mounting bad loans at Indian banks.

Despite Monday’s rebound, the Sensex is down 11 per cent year-to-date because of a sell-off of over $2 billion (Rs 13,603 crore) by FIIs.