Sensex, Nifty close at over 3-month high on easing inflation, monsoon outlook

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Mumbai: Benchmark equity indices closed at their highest levels in nearly three-and–a-half months after the India Meteorological Department (IMD) forecast an above-normal monsoon and economic indicators pointed to stronger growth and contained inflation.

Stable commodity prices, aided by weakness in the dollar, also pushed risk-assets such as emerging market equities higher, adding to the cheer in the Indian markets.

The BSE’s 30-share Sensex closed 1.91%, or 481.16 points, higher at 25,626.75, while National Stock Exchange’s (NSE’s) 50-share Nifty climbed 1.84%, or 141.50 points, to 7,850.45. It was the highest closing level since 1 January for both these indices.

All the sectoral indices closed in the green. The BSE Auto index and the BSE Bankex lead the gains with a 3.59% and 2.56% rise, respectively.

Twenty-eight of 30 Sensex stocks closed higher. Utility vehicle maker Mahindra and Mahindra Ltd surged 7.40% ahead and was the top gainer among Sensex-30 stocks, while top private lender ICICI Bank Ltd advanced 5.40%.

IMD said on Tuesday the monsoon rainfall will be 106% of the long-period average, which is above normal, and there is a 94% probability that monsoon will be normal to excess.

Data released after market hours on Tuesday also showed that factory output rose 2% in February after three consecutive months of contraction. Inflation, meanwhile, moderated further and Consumer Price Index (CPI)-based inflation fell to 4.83% in March.

India will be the fastest growing major economy in 2016-17 growing at 7.5%, ahead of China, at a time when global growth is facing increasing downside risks, as per the World Economic Outlook released by International Monetary Fund (IMF) this week.

Stocks rallied on these improved macroeconomic fundamentals and the hope that corporate earnings will slowly improve. The top gainers in trade on Wednesday were stocks linked to the rural economy.

Tata Chemicals Ltd rose 7.12%; Coromandel International Ltd climbed 5.6%; Rallis India Ltd rose 3.8%; PI Industries Ltd rose 5.5%, while Kaveri Seed Co. Ltd was up 5.2%.

“Apart from the news that came in yesterday on the domestic front, a weak dollar, and stable commodity prices are driving emerging markets higher. The data points, that have come in (factory data and inflation), look better in the context of last few months,” said Gautam Chhaochharia, head of research, UBS Securities India Pvt. Ltd.

“But then, we have seen similar spurts earlier. Whether this will sustain at higher levels, is too early to say,” added Chhaochharia,

Others shared the view.

“Till the time, the dollar is weak globally and the commodity places are stable, the risk-on trade is likely to continue, fuelling a rally in emerging markets,” said Vaibhav Sanghavi, managing director of Ambit Investment Advisors Pvt. Ltd. Sanghavi added that the rally in Indian markets is also being backed by strong economic data.

Since 1 March, the dollar Index, which measures the greenback against a basket of six major currencies, has declined 3.9% to 94.54, its lowest level since 14 October.

“Till the time the tap of liquidity is on globally, we will see the rally continuing. Once that dries, it will be stalled. It is difficult to predict when that will happen”, added Sanghavi.

Foreign institutional investors have pumped in a net of $3.9 billion in Indian shares since the start of March, leading to a net inflow of $1.1 billion for the year to date period.