Stock indices clock biggest single-day gain in 3 months

Mumbai: India's benchmark equity indices posted the biggest single-day gain in three months on Tuesday, with the BSE Sensex surging 2.54% after the recent selloff, shrugging off lingering concerns over persistently high inflation, declining rupee and a recession in the US.

The rally did not rub off on stock market debutant Life Insurance Corporation (LIC) of India, though, whose shares listed at an 8.6% discount to the issue price following the country's biggest initial public offering (IPO).

While the Sensex gained 1,344.63 points to close at 54,318.47, Nifty jumped 417 points or 2.63% to close at 16,259.30. Across share categories on the BSE, gainers outnumbered losers 2,607:737, indicating broad-based upsides. Among top index gainers, Tata Steel soared 7.6% and RIL ran up 4.3%

The pace of the market rebound on Tuesday may have opened up the possibility of further gains for now, but analysts warned the worst might not be over. "The strength in today's move is pointing to another 400-500-point rally in the Nifty," said Siddarth Bhamre, head-research, Religare Broking.

"That said, it's too early to say that a bottom has been made because fundamentally nothing has changed," Bhamre said.

The Sensex and Nifty have gained 2.9% in the past two days after declining 13% till May 13 from their 2022 high on April 5. Market participants said the market was "oversold" after the recent drop.

Bank of America Securities cut its target on Nifty to 16,000 from 17,000 earlier, citing expectations of faster interest rate increases by the US Federal Reserve and higher-than-expected domestic inflation. The brokerage said it saw "flattish" market returns from current levels.

Analysts said the strength in global markets helped domestic stocks brush aside the 15.08% surge in wholesale price inflation in India in April announced during stock trading hours on Tuesday. In March, the inflation reading was 14.55%.

Asian markets advanced after China indicated it will ease lockdown in Shanghai and gradually reopen businesses. The Stoxx Europe 600 rose 1.2%.

US stocks also rose on Tuesday in a broad-based advance as solid economic data helped buoy risk appetite for markets roiled by concerns over surging prices and policy tightening. Treasuries fell with the dollar. All but one of the 11 major industry groups in the S&P 500 advanced. The Nasdaq 100 was up more than 2% at the time of going to press.

In India, the Volatility Index or VIX dropped 7.3% to 22.74, suggesting a drop in risk perception among traders. However, the VIX levels do not indicate that the mood has turned optimistic, said analysts.

"For a change in trend, the market has to confirm with a higher top higher bottom structure which is yet to be seen and till then, one should take this as a pullback move," said Ruchit Jain, lead research at retail brokerage 5paisa.com.
Some analysts said investor money that was kept aside for the LIC IPO could find its way into stocks.

"Since a large amount of money has been released post listing of LIC, part of this money could get diverted into equity markets," said Hemang Jani, head-equity strategy, broking and distribution, Motilal Oswal Financial Services.

Foreign portfolio investors were net sellers to the tune of ₹2,192 crore on Tuesday, while their domestic counterparts bought shares worth ₹2,294 crore. So far in May, overseas investors have pulled ₹28,784 crore out of Indian shares, taking sales tally since January to almost ₹160,000 crore.

Investors will watch the direction of the dollar, which is at a 20-year high, for hints on foreign flows. The strength in the US currency comes in the wake of the April consumer inflation in the US staying near the 40-year high of 8.5% seen in March.

Rising prices have intensified worries that more aggressive monetary tightening by the Fed might be in the offing. A firm dollar results in outflows from emerging markets as it erodes the value of these assets held in local currencies.