Sensex gains on positive monsoon forecast, banking stocks lead charge

Broader markets jubilant; BSE Smallcap index registers longest winning streak since 2012

Indian markets snapped their two-day losing streak on Friday as a positive weather forecast provided a boost to consumer and financial services stocks. The benchmark Sensex climbed 391 points, or one per cent, to close at 37,556, while the broader Nifty closed 116 points, or one per cent, higher at 11,361. 

The positive sentiment also echoed in the broader markets as the BSE mid- and small-cap indices gained 0.9 per cent and 1.1 per cent, respectively. All the 19 sectoral indices trading in the BSE closed in the green. Foreign portfolio investors (FPIs) net sold shares worth Rs 58.7 million, while domestic institutions bought shares worth Rs 870 million.

This relief rally in the markets comes after the India Meteorological Department (IMD) predicted a normal monsoon at 95 per cent of the long-term averages. Banking stocks led the charge during Friday's rally with shares of Axis Bank jumping 5.2 per cent -- the most by any Sensex company. Shares of Yes Bank, ICICI Bank, Kotak Mahindra Bank and HDFC, too, gained more than two per cent each.

  

"Market turned to positive terrain after two days of selling as IMD's prediction of favourable distribution of rainfall and outperformance in banking stock supported the rally. Global markets, too, recovered from Thursday's fall and investors are awaiting US job data due later on Friday to get clues on the pace of interest rate hikes," said Vinod Nair, head of research, Geojit Financial Services.  

The market movement in the past 10 days has provided some respite to investors as broader markets are now showing signs of recovery. The BSE Smallcap index, the 855-member gauge, has gone up for 11 straight sessions, its longest winning streak since December 2012. In the past 11 sessions, the index has gone up 7.5 per cent. The BSE mid-cap index, on the other hand, has closed in the green for seven straight sessions. The index has posted a seven per cent rally during the course. Market participants say that beaten down valuations and better than expected earnings in certain pockets have led to this rally in the mid and small-cap stocks. 

Analysts expect markets to remain volatile in the near- to medium-term as global headwinds such as escalating tensions between the US and China weigh down investor sentiment. However, consumption-related sectors are expected to give positive returns.

"Going ahead, eyes would continue to remain on trade war-related news along with progress of monsoons domestically. Thus, in the current scenario, we prefer bottom-up approach for companies expecting healthy growth in earnings such as information technology and banking," said Kotak Securities in a note to investors.