Stock market sprints on crude slide, easing Greece woes

A confluence of positive global events and easing domestic concerns on Friday helped the stock market clinch its highest single-day gains since the post-Budget rally.

The Sensex surged 513.19 points, or 2.9%, to close at 18240.68, while the Nifty ended the day at 5471, up 151 points

Overnight, crude prices came off sharply following the International Energy Agency’s announcement to release 60 million barrel oil over the next 30 days, even as Greece reached an agreement with its European counterparts on revised austerity plans. Also, China premier Wen Jiabao said measures to tackle inflation were working.

Experts attribute the sharp rally to some bit of short covering along with reasonable valuations that led to fresh buying.

“Though there was a bout of short covering, markets were helped by fresh buying as valuations have been quite attractive. Market participants over the last few months were concerned regarding headwinds like high commodity prices, inflation and rising interest rates. With oil prices cooling off, inflationary expectations would come down, which may signal peaking off of interest rates. Also, it helps to improve the government’s fiscal situation,” said Deven Sangoi, vice-president & head - equity investment at Birla Sun Life Insurance.

The market surge was accompanied by a rise in volumes in both cash and derivatives segment. The total cash volumes on the two exchanges were at `15,222.99 crore — the highest so far this month.

“The markets were quite oversold. The markets over last few sessions were going down on lacklustre volumes with not much participation from foreign investors. FIIs had already covered most of their shorts when market fell on rumours of revised India Mauritius tax treaty. With overall cues being good and market valuations at reasonable levels, fresh long build up was witnessed in a few sectors like banks and technology, which led to Friday’s rally,” said Karun Mutha, head derivatives at HSBC Invest Securities.

FIIs, who have been net sellers of equities worth `2,267 crore so far this calendar year, bought shares worth `890.44 crore in the cash market on Friday.

The breadth was quite positive with all the sectors, barring consumer durables, closing the day with gains of 1-4%. Interest rate sensitive sectors like realty, capital goods, banking and autos gained over 3%.

Experts feel the positive trend will continue till expiry before the market starts consolidating.

“Puts at 5400 levels have seen considerable addition, while fresh put writing is also being witnessed at 5500 levels, which suggest markets may close around 5500 levels at expiry. With the EGoM meeting deciding on price hikes, sentiments are likely to remain positive and oil marketing companies may see further run up,” said Mutha.
“This is a pullback rally, which may extend a bit further. If Nifty manges to close above 5520, we can see rally till 5600. However, I don’t see much upside from those levels,” said Rohit Gokhale, technical analyst at Wallfort Financial Services. Despite the near-term uncertainty, experts remain positive on the markets from a one-year perspective.

“The markets seem to have discounted slower growth and there may not be many downgrades in earnings ahead. At around 13 times one-year FY13 earnings, markets are looking attractive from a longer-term perspective,” said Sangoi.

“We will want to watch the monsoons. Although the latest figures suggest a slight shortfall in the total amount, this is not worrisome. Oil has fallen significantly from its peak and the decision of the International Energy Agency is likely to result in further correction. I am optimistic on the market in the short-term,” said Chokkalingam G, executive director and chief investment officer at FCH Centrum Wealth Managers.