Yellen's comments spark rally

Sensex, Nifty add 1.8% each

Indian markets on Thursday posted their biggest jump in almost a month after the US Federal Reserve Chair Janet Yellen reasserted that the American central bank would take a cautious approach on raising interest rates. Yellen’s statement sparked a rally in most global stocks and commodities, while the dollar extended losses.

The benchmark BSE Sensex gained 438 points, or 1.8 per cent, to 25,338.6, while the Nifty 50 added 138 points, or 1.8 per cent, to 7,735.

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Asian markets rallied 1.5 per cent, while the pan-European Stoxx Europe 600 Index climbed 1.7 per cent. Global crude oil and shares of commodity-related companies also posted gains.

Diminishing prospects for a first-half Fed rate increase sent the Bloomberg Dollar Spot Index towards the lowest level since June and drove emerging-market currencies towards their best month since 1998.

Bloomberg’s dollar index, which tracks the greenback against 10 major peers, has lost 3.7 per cent in March, set for a second straight monthly drop and the biggest decline since September 2010.

The rupee on Thursday ended at 66.38 against the previous close of 66.53. The domestic currency has gained three per cent against the dollar this month.

Foreign institutional investors (FIIs) on Thursday purchased shares worth Rs 1,442 crore, while domestic investors were seen selling shares worth nearly Rs 400 crore, provisional data provided by stock exchanges showed.

So far this month, FIIs have pumped in a whopping Rs 22,000 crore (over $3 billion), highest monthly investment (in rupee terms) in nearly three years. Mutual funds, on the other hand, have sold shares worth nearly Rs 6,000 crore, in their first monthly pullout after 21 months.

“In the second quarter of 2016, on the domestic front, the market will be focused on RBI policy –a ratecut of 25 bps expected, the Parliament session - watch for action on the GST bill and bankruptcy law, the 4QF16 earnings season - how bad can it get from here and the state election results although the BJP is not a key player in these polls. However, the key to absolute market moves is still what happens outside India,” said Ridham Desai, managing director, Morgan Stanley India in a note.

The Indian market is down nearly 3 per cent in the March quarter. The Sensex after plunging as much as 14 per cent has managed to recoup most of the losses thanks to the rally seen this month. The benchmark indices are up nearly 11 per cent in March.

The sharp rally, however, has increased the valuations of Indian stocks and analysts expect limited upside due to lack of earnings support.

Sakthi Siva, head equity strategy (Asia-Pacific and global emerging markets), Credit Suisse in a note said the rise in price-to-book (P/B) to return on equity (ROE) premium could lead to underperformance.

“India's P/B vs ROE premium once again rises to above 50 per cent. While we had highlighted in our 1 March report that India's premium had fallen below 40 per cent… its has once again risen to above 50 per cent. While history is not always an accurate guide, previous episodes were associated with underperformance,” said Siva.