The Indian markets rallied on Monday, led by sharp gains in banking stocks on optimism that the festive season will boost consumer demand. The move to increase the dearness allowance for government employees, coupled with a dovish stance by the US Federal Reserve, helped improve investor sentiment. Market players said short covering after six straight days of losses propelled the gains.
The benchmark Sensex closed at 38,178, gaining 646 points, or 1.72 per cent, while the Nifty50 index ended at 11,313, a gain of 187 points, or 1.68 per cent. Both the indices recouped nearly half of the losses made in the past six sessions. The indices had declined nearly 4 per cent in this period as investors fretted over the health of the financial sector amid rising corporate defaults.
Beaten-down stocks in the banking and automobile sector saw huge buying interest.
In the Sensex pack, IndusInd Bank and State Bank of India rose nearly 5 per cent each, while index heavyweight HDFC Bank rose 3.4 per cent and made 168-point contribution to the Sensex gains.
The BSE Bankex rose 3.7 per cent, after declining nearly 8 per cent in the six sessions.
Analysts said the move to lower the corporate tax rate would add to festive demand this season. Also, the market took the decision to hike the dearness allowance by 5 per cent, from 12 per cent to 17 per cent, positively. The move will entail an outgo of Rs 16,000 crore and is expected to benefit at least 5 million government employees and 6.5 million pensioners.
Some experts said market valuations had turned favourable for long-term investors.
"The corporate tax cut is a pro-investment stimulus but will take time to show results, given the nature of the economic slowdown. In the meantime, the earnings lift of 9 per cent in the Nifty50 companies after the corporate tax cut will provide support to equity valuations," said Rahul Singh, chief investment officer– equities, Tata Mutual Fund.
Further, market players said, investors should use the recent decline in the equity market as an opportunity to allocate more.
"Over the long term, we remain optimistic on Indian equities. India is likely to grow faster than many nations. The economy is dependent on domestic consumption and thus insulated from any global problems. Events like global trade wars have minimal impact on India," Atul Kumar, head-equity, Quantum Mutual Fund, said.
Market players said the upcoming earnings season and trade talks between the US and China would dictate the trend for the Indian markets. More than the earnings announcement, the focus would be on the outlook provided by the management, especially for consumption-driven companies, said analysts.
Last week, investors, especially foreign portfolio investors (FPI), had pulled out from the Indian markets as fresh crisis in the financial sector diminished the positive sentiment brought by the corporate tax cut. On Wednesday, FPIs sold shares worth Rs 485 crore, while domestic investors provided buying support to the tune of Rs 956 crore. Barring two, all 19 sectoral indices compiled by the BSE gained.