Short-covering, crude prices swelled Indian equity markets (Weekly Review)

Mumbai, Feb 20 (IANS) Short-covering, combined with value buying and positive global cues swelled the Indian equity markets to their highest levels this year, during the just-concluded weekly trade.

Indian equity markets gained on the back of short-covering which were triggered on the hopes of positive budgetary announcements.

Even value buying during the week under review led prices higher. Valuations became attractive after the relentless selling in the last couple of weeks.

The Indian bellwether indices had posted their biggest weekly loss since July, 2009. They lost over 6.60 percent each during the week ended February 12. The equity markets were dragged to their lowest levels in over 21 months.

In contrast, the barometer 30-scrip sensitive index (S&P Sensex) of the Bombay Stock Exchange (BSE) zoomed by 723.03 points or 3.14 percent to 23,709.15 points during the just concluded week.

Similarly, the wider 50-scrip Nifty of the National Stock Exchange (NSE) rose by 229.8 points or 3.29 percent to 7,210.75 points.

Global indices, too rose with the Dow Jones Industrial Average closing the week with gains of 2.6 percent. London’s FTSE rose by 4.2 percent during the week under review.

“Benchmark indices ended the week with gains of more than three percent, the best weekly performance this year. The bounce back was largely on account of global cues,” Vaibhav Agarwal, vice president and research head at Angel Broking, told IANS.

“Cyclical stocks bounced back sharply with metals, capital goods and the automobile sector posting strong gains.”

Further, short-covering and value buying supported the stock prices upward movement.

“Short-covering, value-buying and positive global indices restored investors’ risk taking appetite and rose the markets higher,” Anand James, co-head, technical research desk with Geojit BNP Paribas Financial Services, told IANS.

“Short-covering were triggered on hopes of positive budgetary announcements.”

Market participants are hopeful that the central government may increase expenditure, announce tax concessions and pave the way to reduce the NPAs (non-performing assets) levels of the banking sector.

Even the initial positive comments on the negotiations between Britain and the European Union (EU) over the continuation of the isle nation in the economic grouping cheered investors.

“The reduced chances of a Brexit and plans to create a bank to deal with PSU’s NPAs also supported the recovery rally,” James noted.

Besides, sentiments remained bullish as the US Federal Reserve’s January meet minutes lessened the chances of a rate hike in March.

A US rate hike could potentially lead to massive amounts of pullback of foreign funds from emerging economies like India.

In addition, stable crude oil prices around $30 a barrel (one barrel is equal to 159 litres), led investors to chase stock prices higher.

“This performance was largely in-line with how the crude oil prices behaved,” elaborated Pankaj Sharma, head of equities for Equirus Securities.

“Though Russia and Saudi Arabia agreed for a freeze in oil production at January levels, we don’t think it is going to be material to take care of oversupply concerns because Iran is still not committing anything significant.”

However, the selling frenzy by foreign investors continued, which not only dampened equity markets sentiment, but also drowned rupee’s value.

On a weekly basis, the rupee weakened by 23 paise to 68.47 (February 19) against a US dollar from its previous close of 68.23-24 (February 12).

On Wednesday, the Indian rupee touched its lowest level since early September 2013 at 68.67 mark on the spot market.

The weakness in the India rupee’s value indicates the massive outflow of foreign funds from the equity and debt markets.

The National Securities Depository Limited (NSDL) figures showed that the FPIs (Foreign Portfolio Investors) sold Rs.3,307.47 crore or $484.42 million in the equity and debt markets from February 15-19.

Data with stock exchanges disclosed that the FPIs divested stocks worth Rs.2,608.87 crore during the week under review.

Conversely, the data showed that domestic institutional investors (DIIs) bought stocks worth Rs.3,691.36 crore.

(Rohit Vaid can be contacted at rohit.v@ians.in)

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