The stock markets posted sharp gains for a second day in a row on Friday, after the rupee strengthened and crude oil prices and benchmark government bond yields retreated.
Market players said investors were hoping for a positive outcome from the meeting between Prime Minister Narendra Modi and government officials on Friday evening. The meeting is being held to discuss the fall of the rupee and other economic issues.
News of a fresh round of trade talks between the US and China boosted investor sentiment, lifting most global stocks.
A sliding rupee and surging bond yields amid deteriorating macro fundamentals had battered stock prices at the start of the week. The Sensex recouped two-thirds of the losses to end the week 0.8 per cent lower, its worst weekly setback since May 20.
The rupee, which had dropped to an all-time low of 72.69 against the dollar during the week, ended at 71.85 on Friday. The 10-year government bond yield after climbing to 8.18 per cent on Tuesday, ended at 8.13 per cent on Friday. Brent crude prices traded below $78 a barrel, after nearly touching $80 a barrel earlier in the week.
“Easing of inflation and recovery in the rupee has led to optimism in the market,” said Vinod Nair, head of research at Geojit Financial Services.
He added: “Stability in the bond and currency markets will be crucial for the market momentum to sustain. The global markets gained on expectation that trade tensions between the US and China will ease.”
Stability in the financial markets saw foreign portfolio investors (FPIs) turn strong net buyers to the tune of Rs 10.9 billion on Friday. In the previous three sessions, FPIs had pulled out Rs 35 billion from the equity market amid a global risk-off.
The market breadth was strong on Friday with the Nifty Mid-cap 100 and the Nifty Small-cap 100 gaining 1.8 per cent and 1.5 per cent, respectively. The India Vix index, a gauge for market volatility, cooled off by 3 per cent to close at 13.84. All Sensex components, with the exception of Coal India and Infosys, ended with gains. Vedanta gained the most at 5.25 per cent, followed by Power Grid, which rose 3.6 per cent. A total of 1,811 stocks advanced and 850 declined on the BSE.
Market players said buying across the board was seen after the recent correction lowered valuations. However, some believe markets are still not out of the woods.
The recovery should not be taken as a beginning of a new rally, said Jimeet Modi, chief executive officer at Samco Securities. "The Fed meeting and global headwinds remain key uncertainties. Investors should not take this as a buying opportunity, but should consider booking profits," he said.