The equity markets recovered Thursday’s losses with an across-the-board buying on Friday. The benchmark indices posted their biggest single-day gain in over two years as the spurt in the rupee and the drop in global oil prices improved investor sentiment. Despite another sharp cut in US equities overnight, most markets rebounded globally, as a retreat in bond yields and the dollar helped trigger risk-on bets.
Asian markets also advanced on encouraging trade data from China, which showed domestic demand in the world’s second-largest economy was strong, despite worsening trade relations with the US. Also, the US Treasury staff’s advice to Treasury Secretary Steven Mnuchin that China was not manipulating the yuan triggered hopes that the two countries would avoid a full-blown trade war.
Apart from positive global cues, the selling in the domestic markets eased as macro headwinds showed signs of easing. The biggest single-day gain in nearly a month helped the rupee end its six-week losing streak against the dollar. The rupee ended at 73.57, up 0.75 per cent over the previous day’s close of 74.12.
Brent crude prices have come off 6 per cent from its recent high of $86 a barrel to trade at $81 a barrel, after its biggest weekly retreat since June 15. The yield on the 10-year benchmark government bond ended at 7.96 per cent, down from recent highs of 8.18 per cent.
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The sharp correction in the domestic market from their August highs was triggered by the slide in the rupee and a surge in oil prices. Experts said the markets could extend gains if oil prices declined further and the rupee continued to gain.
Another positive indicator for the market was the retreat in the dollar and US Treasury yields. The dollar hovered near two-week lows against major global currencies, while the 10-year Treasury yields declined from 3.25 per cent earlier during the week to 3.15 per cent on Friday.
“One of the reasons for the recent dollar strength is the threat of an escalating global trade war, which is creating contagion fears, and flight to US Treasuries. However, we believe the dollar rally may be in its last leg,” said Mukul Kochhar, head of institutional sales (India) at Investec Capital.
The selling by foreign investors also showed some signs of easing. On Friday, foreign portfolio investors sold shares worth Rs 13.22 billion. A day earlier, they had sold shares worth nearly Rs 30 billion. The India VIX index, a gauge for market volatility, fell 9.34 per cent to 18.62.
The biggest gainers among the Sensex components were recently beaten down automobile and banking stocks. Shares of Maruti Suzuki and Mahindra & Mahindra gained more than 5 per cent each. Index heavyweights Reliance and ITC rose around 3.5 per cent each, while HDFC Bank and HDFC gained more than 2 per cent each. These four stocks contributed to half of the Sensex’s gains. Tata Consultancy Services was the only losing stock on the Sensex. Shares of the information technology major dropped 3 per cent on concerns over high valuations, after its profits missed the Street’s estimates.
The broader market saw strong buying, with the mid-cap and small-cap indices gaining nearly 3 per cent each. Market players said the trajectory of the US markets and corporate earnings would dictate market direction in the near-term.