After five consecutive days of steep declines, Indian stock markets witnessed a solid rebound on Monday, fuelled by buying in the blue chip stocks like ICICI Bank, SBI and Infosys. Easing concerns over the Middle East conflict, positive trends in Asian peers and continuous buying by domestic institutional investors (DIIs) also boosted the market sentiment.
The BSE Sensex settled 692.36 points or 0.87 per cent higher at 80,094.65 after hitting the day’s high of 80,539.82. The NSE Nifty50 closed at 24,367.35, up 186.55 points or 0.77 per cent from previous close.
However, analysts warned of potential downsides as foreign institutional investors (FIIs) continue to exit and Q2 corporate earnings have been disappointing.
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Broader market also witnessed some recovery, with the BSE Midcap up 0.7 per cent and the BSE Smallcap up 1.3 per cent.
VK Vijayakumar, chief investment strategist at Geojit Financial Services says a significant market trend during the recent days of market correction is the flight to quality.
While the Nifty corrected by 8.3 per cent from the recent peak, the mid and small-cap indices corrected by 9.8 per cent and 9.3 per cent respectively from their recent peaks.
Benchmark indices Sensex and Nifty50 index recently declined nearly 8 per cent from record highs touched in late September, pulled by sustained foreign fund outflows and weaker corporate earnings. Investors are shifting funds to China, attracted by Beijing’s economic stimulus package and lower valuations.
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“The trend of flight to quality is likely to sustain given the good numbers from banking majors like HDFC Bank and ICICI Bank where valuations continue to be fair. Investors can profit from these polarised valuations,” Vijayakumar said.
“The global market structure may turn favourable after the subdued Israeli strikes against Iran avoiding the Iranian oil fields which has resulted in a sharp drop in crude prices. The imminent US presidential elections and the uncertainty associated with that will continue to weigh on markets," he said.
According to stock exchange data, foreign Institutional Investors (FIIs) offloaded equities worth Rs 3,036.75 crore on Friday, while Domestic Institutional Investors (DIIs) bought shares worth Rs 4,159.29 crore, according to exchange data.
On Monday, global oil benchmark Brent crude eased 4.38 per cent to USD 72.72 a barrel.
For the week ahead, investors will closely watch the ongoing Q2 corporate earnings reports, the monthly, derivatives expiry, geopolitical developments in the Middle East, trends in FII flows, crude oil prices, and developments around the US Presidential Election.
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