Indian stocks soar as global contagion fear recedes

“Indian markets played a catch-up rally with global markets, which had witnessed two consecutive days of a strong move, while Indian markets remained closed on Thursday”, said Naveen Kulkarni, chief investment officer of Axis Securities. Experts believe contagion fears have eased since no foreign bank failures have been reported recently. US markets have recovered, and technology stocks have rallied. The tech-heavy Nasdaq 100 entered a bull market, rising 20% from its December low.

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“Improving sentiments in the developed markets, especially the US, was reflected in the domestic equity markets. Rising expectations of a contained banking crisis without any contagion, coupled with higher jobless claims, led to markets betting on the Fed going slow on the rate hike front,” said Joseph Thomas, head of research at Emkay Wealth Management.

Large caps led Friday’s rally, with support from small and medium caps. Stocks in real estate, infrastructure, oil and gas, and commodities rose as well, with all sectoral indices ending in the green.

Morgan Stanley has upgraded India to equal weight, citing its narrowing valuation premiums and resilient economy.

After a steep correction, Indian stock valuations have moderated, attracting global investors in the last two sessions. Foreign portfolio investors (FPIs) were buyers for the third session on Friday, buying a provisional ₹357.86 crore.

“The market is oversold, and this can lead to short-covering and a tactical rally in the near term,” said V.K. Vijayakumar, chief investment strategist at Geojit Financial Services. However, he added that a sustained rally is unlikely since FIIs will sell at higher levels.

Markets seem to have discounted some positives, and future movements may depend more on data and validation of expectations, said analysts.

Investors will keep an eye on March auto sales numbers that will start coming from 1 April and the Reserve Bank of India’s monetary policy committee (MPC) decision on interest rates on 6 April. The earnings season beginning 13 April will also influence market sentiments and stock movements.

Despite this week’s rally, markets may remain volatile in the near term, Kulkarni of Axis Securities said, since the banking crisis in the US and Europe has not abated completely.

Oil prices that had been easing, however, have been rising in the recent past. Brent at $79.20 a barrel has rebounded from $73.79 a barrel on 20 March, which doesn’t bode well for India. The rupee, however, strengthened thanks to gains in the equity markets and FPI buying. At 82.18 to a dollar on Friday, it was stronger by around 16 paise compared with 82.34 to a dollar during the previous session.