While Thursday was a day of gloom for equity markets, Friday saw an across-the-board boom. Benchmark indices posted their biggest single-day gain in over two years as the spurt in the rupee and drop in global oil prices improved investor sentiment. Globally, most markets rebounded, despite another sharp cut in US equities overnight, as a retreat in bond yields and the dollar triggered risk-on bets.
The sharp gains helped Sensex post its first weekly gain in six weeks. Last week, the benchmark indices had plunged nearly six per cent.
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 relations with US. Also, US Treasury staff’s advice to Treasury Secretary Steven Mnuchin that China isn’t 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. Biggest single-day gain in nearly a month helped the rupee end six-week losing streak against the dollar. The rupee ended at 73.57, up 0.75 per cent over previous day’s close of 74.12 against the dollar. Brent crude prices also came off six per cent from recent high of $86 a barrel to trade at $81 a barrel after biggest weekly retreat since June 15, 2018. The yield on the 10-year benchmark government bond ended at 7.96, down from recent highs of 8.18 per cent.
The sharp correction in the domestic market from their August highs was triggered by the slide in the rupee and surge in oil prices. Experts said the markets could extend gains if oil prices decline further and rupee continues to gain.
Another positive indicator for the market was the retreat in US dollar and Treasury yields. The dollar hovered near two-week lows against major global currencies, while the 10-year Treasury has 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 safety to US treasuries. However, we believe that the dollar rally may be in its last leg,” said Mukul Kochhar, head of institutional sales (India), Investec Capital.
The selling by overseas 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 Sensex components were recently beaten down automobile and banking stocks. Shares of Maruti Suzuki and Mahindra & Mahindra gained more than five per cent each. Index heavyweights Reliance and ITC rose around 3.5 per cent each, while HDFC Bank and HDFC gained more than two per cent each. These four stocks contributed to half of Sensex gains. Tata Consultancy Services (TCS) was the only losing stock on the Sensex. Shares of the IT major dropped three per cent on concerns over high valuations after its profits missed Street expectations.
The broader market saw strong buying, with the midcap and smallcap indices gaining nearly three per cent each.
Market players the trajectory of the US markets and corporate earnings will dictate market direction in the near-term.