The stock market rebounded sharply from its six-month low on Wednesday amid a retreat in the US dollar, Brent crude, and bond yields.
Banking and financial stocks led the gains on the back of value buying on optimism that liquidity conditions would ease.
The benchmark Sensex ended at 34,761, up 461 points, or 1.35 per cent, while the Nifty50 index gained 159 points, or 1.54 per cent, to close at 10,460. Both the indices saw their biggest single-day gain since April 5. Incidentally, the previous day’s close for the Sensex and the Nifty was at a level last seen on April 4.
Banking sector biggies State Bank of India (SBI), HDFC Bank, ICICI Bank, and Axis Bank contributed to more than half of the gains in the benchmark indices.
Outside the benchmark indices, shares of non-banking financial companies (NBFCs) saw a spurt after SBI said it would increase the purchase of loans from the NBFC sector.
Shares of several NBFCs have corrected sharply in the past one month on fear of contagion risks from Infrastructure Leasing & Financial Services (IL&FS) and concerns of stricter asset liability mismatch norms from the Reserve Bank of India (RBI).
Investor sentiment also got a boost after the rupee gained for the first time in seven days against the dollar and bond yields continued to retreat. The domestic currency closed at 74.21, up 0.23 per cent over its previous day’s close of 74.38.
The 10-year government security yield stood at 8.03 per cent, down 13 basis points from the four-year high of 8.16 per cent on Thursday — a day before the RBI decided to keep the policy rates unchanged.
The selling by foreign portfolio investors (FPIs) was relatively less compared to the past few sessions. On Wednesday, they pulled out Rs 11 billion, while their domestic counterparts invested nearly Rs 19 billion, provisional data showed.
In the past one month, FPIs have pulled out over Rs 240 billion ($3.3 billion) from the equity markets. Mutual funds have invested more than Rs 150 billion during the same period.
The boarder market Nifty Midcap 100 and Smallcap 100 indices jumped more than 4 per cent each. This was the biggest single-day gain for the midcap index since May 2014. For the small index, the gain was most since February 2016. The sharp rebound comes after an 18 per cent and 25 per cent drop in the midcap and smallcap index, respectively, in the past one month. The market breadth was skewed in favour of gainers, with 2,058 stocks advancing and only 611 declining. The India VIX index, a gauge for market volatility, dropped 9 per cent to 17.9.
Market players said the rebound in stocks could be due to technical factors and investors should remain cautious.
“It is a technical bounce back. Fundamentals haven’t changed much. Mutual funds have been sitting on cash, there has been some deployment following the huge correction,” said Dhananjay Sinha, head-institutional research, Emkay Global Financial Services. The Sensex and the Nifty are down nearly 12 per cent from their record highs on August 28. Experts say despite the sharp correction, market valuations were still above their long-term averages.
“We maintain our cautious view on the Indian markets in the near term, as volatility is likely to remain high. Focus of market participants will shift to corporate earnings season and the domestic macro data, as it would dictate further course of markets. Also the movement of currency, crude oil prices, and global developments will be actively tracked by investors,” said Jayant Manglik, president, Religare Broking.