The markets on Tuesday snapped their seven-day losing streak on value buying, even as the Aam Adami Party (AAP) trounced the Bharatiya Janata Party in the Delhi Assembly polls. Investors, who had feared a victory for the anti-establishment party would further spook the markets, took AAP’s victory in their stride.
“Strong local government promising clean governance bodes well for ease of doing business in the territory. Therefore, the market rebounding makes sense,” tweeted Anand Mahindra, chairman and managing director of the Mahindra group.
Analysts said defeat in the Delhi polls would spur the central government to boost capital spending and announce a reform-oriented Budget later this month.
After a day of high volatility in trade, during which the Sensex swung more than 600 points, the country’s benchmark indices ended about half a per cent higher. The BSE Sensex, after gaining about 400 points during the day, ended 128.23 points higher at 28,355.62, while the National Stock Exchange Nifty rose 39.2 points, or 0.46 per cent, to 8,565.55.
The markets came off their highs due to heavy selling by foreign institutional investors (FIIs) ahead of a meeting of euro area finance ministers on Wednesday to renegotiate Greece’s bailout package. A potential exit of Greece from the euro zone could send ripples through financial markets, analysts fear.
According to provisional data, FIIs sold shares worth Rs 1,260 crore on Tuesday. The sell-off was partly negated by buying worth Rs 850 crore by domestic institutions.
“Though the benchmark indices have corrected less than five per cent, a lot of stocks were smashed more than 20 per cent. This led to a lot of value-buying in the market,” said G Chokkalingam, founder & managing director, Equinomics Research & Advisory.
In the past seven trading sessions, the Sensex has corrected about 1,500 points, or five per cent, due to poor corporate earnings, problems in the euro zone and fears of the BJP losing the Delhi elections. Anticipating an AAP victory, a lot of traders had built up short positions in the market. These traders covered their positions, which lead to gains in the market.
Market players said if the global situation remained positive and the government made the right announcements on the reforms front, the markets could see a pre-Budget rally. “Tax collections are down, industrial production has stagnated and state-owned banks are facing asset quality worries. All this should force the Modi government to go after reforms. The Budget will be reform-oriented and this will help the market reverse recent losses,” said Chokkalingam.
Yogesh Radke, head of quantitative research at Edelweiss Securities, said the Nifty had formed a solid base at 8,500, adding the markets could be up for some gains in the run-up to the Budget. “If the global situation is supportive and if there is some deliverable action from the government, we might see a pre-Budget rally.”
Stocks beaten down recently were the biggest gainers on Tuesday. ICICI Bank and State Bank of India, which lost about 15 per cent each in the recent correction, gained 3.3 per cent and 2.7 per cent, respectively. Metal stocks, including Tata Steel and Sterlite Industries, gained about 2.5 per cent each.