The rupee, however, weakened as foreign portfolio investors (FPIs) continued to pull out money despite the decision of the government to withdraw the surcharge imposed on their earnings in the Budget presented in July. Gold prices continued their upward run, soaring to record highs as investors preferred to park their money in the safe haven asset in the uncertain global economic environment.
“The government’s flexibility and focus on ensuring such confidence-boosting measures are a short-term positive for the market,” said Abhiram Eleswarapu, head of India equity research at BNP Paribas, which has a year-end Sensex target of 40,500, implying an 8 per cent upside from current levels.
The benchmark Sensex rebounded 1,000 points in intra-day trade before settling at 37,494 — 793 points or 2.2 per cent higher. The Nifty 50 index ended the day at 11,058 — up 229 points or 2.1 per cent. This was the highest single-day gain since May 20, when both indices had surged more than 3 per cent after exit polls showed that Prime Minister Narendra Modi’s government would be reelected.
On Monday, the rupee closed at 72.02 per dollar, 0.5 per cent weaker than the previous close of 71.66 a dollar. Domestic gold prices rose 2.5 per cent or Rs 960 to Rs 38,560 per 10 gm. This is an all-time high.
The markets had briefly slipped into the negative zone in early trade on Monday amid a sharp sell-off in Asian markets despite a slew of measures announced by Finance Minister Nirmala Sitharaman on Friday to boost the banking, auto and other sectors reeling from a slowdown. The sell-off in the peer markets was sparked by US President Donald Trump on Friday hiking tariffs on Chinese imports.
However, global investor sentiment improved through the day after Trump, who is attending the G7 meet in France, announced that the US and China would resume trade talks. This optimism was reflected in European markets and a huge jump in Dow Jones futures, triggering a bounce in domestic equities.
Indian markets, in fact, outperformed most global peers.
FPIs sold equities worth Rs 752 crore on Monday, while domestic investors bought shares to the tune of nearly Rs 1,300 crore. The selling by overseas investors dashed hopes of a turnaround in FPI sentiment following the withdrawal of surcharge.
Experts said while the move was a big positive, FPI buying will remain muted until there is an earnings revival.
“The June quarter earnings season was lacklustre, and high-frequency indicators suggest income uncertainty and hence weak spending intentions among consumers. Global factors such as the most recent escalation in the US-China trade tensions have turned more unfavourable,” said Eleswarapu.
Financial and realty indices rallied sharply — nearly 4 per cent each, while the auto index gained only marginally despite the measures announced by the government.
Twenty-two stocks in the Sensex gained, with YES Bank gaining the most at 6.3 per cent. HDFC rose by 5.24 per cent. Bajaj Finance, HDFC Bank and ICICI Bank rose by more than 4 per cent.
“Two issues were bothering the markets in the past two months. One was related to the surcharge, and the other was related to the continued slowdown. The concerns associated with FPI surcharge have been alleviated. And on the slowdown, a beginning has been made,” said Rajat Rajgarhia, chief executive officer, institutional equities, Motilal Oswal Financial Services.
Economist are of the opinion that there is not much room available for the government to provide a fiscal stimulus as there could be pressure on the revenues because of sluggish economic growth. Fears of a global recession and escalated trade war between the US and China have also affected sentiment.
Analysts feel that the government measures will have only a short-term effect as these are unlikely to meaningfully boost corporate earnings.