After Monday’s steep climb, prepare for more volatility in stocks
The NSE’s benchmark Nifty closed 1.8% higher at 21,737.60 points, while BSE’s Sensex ended 1.76% higher at 71,941.57, their biggest gains since 4 December. The RIL stock climbed almost 7%, contributing the most to the day’s market gains, as investors turned optimistic about potentially higher refining margins.
The RIL stock also got a boost from a Bloomberg report late last week that said Walt Disney Co.’s India unit may now be valued at less than half the valuation the US company earlier pursued in a proposed merger with its media business.
Oil & Natural Gas Corp. Ltd (ONGC) was the biggest gainer in the Nifty index, rising 8.9%.
The market also got a boost from strong cues in the Asian markets, after China said it would fully suspend the lending of restricted shares to stabilize its stock markets. Domestically, 12 of the 13 sectors logged gains.
Banks rebounded, after disappointing earnings by HDFC Bank Ltd triggered a rout across banking stocks last week. Led by a 1.34% rise in HDFC Bank, financial services, which has the highest weightage among all sectors, added 1.56% after slipping 6.3% in the past seven sessions. Private sector banks rallied on the back of on domestic institutions buying up these stocks as they turn “value picks,” said Manish Jain, a fund manager at Centrum India.
“Expectations of a hike in allocations in sectors like energy, infrastructure, defence and capital goods…also aided the rally,” said Deven Choksey, managing director at DRChoksey FinServ, referring to the interim budget that will be presented in Parliament later this week.
On the valuation front, the MSCI India index is trading at a one-year forward price-to-earnings multiple of 21.45 times, a steep premium to the MSCI Asia Ex-Japan and MSCI Emerging Market indices, showed Bloomberg data. While this valuation gap between India and its peers is likely to persist, the rich multiple can be put to test if a negative surprise springs up in any of these events.
Among individual stocks, Adani Enterprises Ltd jumped about 6% after Cantor Fitzgerald became the first brokerage to cover the stock, giving it an “overweight” rating, saying the conglomerate’s flagship was “too big to ignore.”
Amid the earnings season, finance minister Nirmala Sitharaman will unveil the interim budget on 1 February.
According to Andrew Holland, chief executive officer, Avendus Capital Alternate Strategies, the budget will merely indicate the approach the current government would adopt if it secures victory in the general election, making it a directional one.
Investors are also looking to the rate-setting committee of the US Federal Reserve that meets on Tuesday and Wednesday.
The Fed kept rates steady in December, but signalled several rate cuts throughout 2024. However, geopolitical tensions and the Red Sea crisis are feared to raise crude oil prices, weighing on the prospects of a rate cut. The Fed is expected to keep rates unchanged this time as well.
“Globally, the upcoming Fed policy stands out as a crucial factor. While a rate cut by the FOMC (US Federal Open Market Committee) is unlikely, investors will eagerly monitor their commentary to get cues on future rate paths,” said Vinod Nair, head of research at Geojit Financial Services.
In a report on 29 January, analysts from Kotak Institutional Equities pointed out that Q3 results reinforced the dichotomy that has persisted in the Indian economy for more than a year. “Consumption continues to be weak, highlighting the challenges (low income, high inflation) of low-income households, and investment, especially high-end residential real estate, continues to be strong, stressing the solid financial condition of the high-income households,” said the report.
Until 24 January this year, foreign portfolio investors have sold Indian equities worth ₹26,842 crore, National Securities Depository Ltd data showed. At the same time, domestic institutional investors bought shares worth ₹19,976.25 crore.
The Nifty VIX has risen 8% so far in January, while the Nifty 50 has stayed flat. Investors seem to be cautious and that may lead to some market consolidation ahead of the general election.
