Positive global cues help markets recoup losses

FIIs continue to pull out money

Supportive global markets helped the domestic market recoup some of the losses made in the past fortnight. Strong US factory data and the prospect of tax cuts in the world’s largest economy fuelled a rally, as the US markets climbed to a new record on Monday and the MSCI Asia Pacific added 0.6 per cent on Tuesday. India’s benchmark BSE Sensex gained 214 points, or 0.7 per cent, to close at 31,497; the National Stock Exchange’s Nifty 50 gained 71 points, or 0.7 per cent, to close at 9,859.5. The broader markets also remained positive, with the BSE mid- and small-cap indices gaining 0.8 per cent and 0.5 per cent, respectively.

Analysts said the markets were oversold in the past two weeks on account of concerns over India's economic growth. Last week, the benchmark Nifty lost close to two per cent, and had come off nearly five per cent from its all-time high recorded on September 18. The fall in the domestic equities and the rupee—sharper than emerging market (EM) peers — was on the back of macro worries. “India’s underperformance within EMs was accentuated by growing fears of deteriorating macroeconomic indicators.

The current slowdown in growth has been exacerbated by the twin impact of demonetisation and goods and services tax (GST) implementation. Both these factors are transient in nature. However, long-term benefits of these reforms are undisputed,” said Vinod Karki, vice-president (strategy), ICICI Securities.

 

Despite the positive sentiment, foreign institutional investors (FIIs) continued to take money off the table. On Tuesday, they sold equities worth Rs 693 crore, provisional data from stock exchanges showed. Last month, they had pulled out Rs 11,392 crore ($1.8 billion) from domestic equities. On the other hand, domestic institutions, led by mutual funds, continue to pump in money. The home-grown institutions purchased shares worth Rs 1,552 crore on Tuesday.

Earnings continue to be the biggest headwind. In the next week, earnings season for the September quarter would begin. Analysts expect another muted quarter, as companies continue to reel under the pressure of the GST.

“The earnings for the September quarter are unlikely to throw any surprises. Recovery in earnings could still be two-three quarters away. However, to justify the high price-to-earnings multiples, revival in corporate earnings is a must. If the recovery is further delayed, it could have an adverse impact on equities,” said Devarsh Vakil, head advisory (PCG group), HDFC Securities.