Bulls are back: Equities rebound over 1%; crude below $100 per barrel

Reversal in FPI selling buoys sentiment

The benchmark indices gained over 1 per cent on Wednesday as falling commodity prices, ease in overseas investor selling pressure, and rate-hike worries lifted investor sentiment. The benchmark Sensex gained 616 points, or 1.16 per cent, to close at 53,751 — the highest close since June 10.

The Nifty ended the session at 15,990 — a gain of 179 points, or 1.1 per cent. This was the biggest single-day gain for both indices in over two weeks.

Brent crude futures dropped below $100 for the first time since April 25 as recession fears fuelled a broader sell-off. The drop comes after Brent crude futures saw its third-largest drop in dollar terms on Tuesday.

The easing in foreign portfolio investor (FPI) selling has also brought in some relief to investors. On Wednesday, they sold shares worth just Rs 330 crore and in the previous session, they were net-buyers to the tune of Rs 1,300 crore.

In the past fortnight, the average daily selling by overseas funds has moderated to less than Rs 1,300 crore, compared with nearly Rs 3,500 crore in the preceding fortnight. It helped equities bounce back.

The Sensex and the Nifty are now up around 6 per cent since June 17, when they had fallen to their 13-month lows.

The turnaround in FPI sentiment is underpinned by a rally in bond markets since softening of global commodity prices stoked optimism that the US Federal Reserve (Fed) and other central banks would have room to be less aggressive in their fight against inflation.

Analysts said markets are now pricing in a benchmark rate of 3.3 per cent by February 2023, against 3.9 per cent over three weeks back.

“The Indian market has been gaining strength in the past few on the back of favourable FPI flows, sharp fall in global commodity prices, including crude, and a strong services Purchasing Managers’ Index data. A sharp cool-off in oil prices has improved sentiment for oil-sensitive sectors like fast-moving consumer goods (FMCG), cement, paint, and automotive (auto). Real estate stocks were also focused on the back of strong demand in key markets like Mumbai,” said Siddhartha Khemka, head of retail research, Motilal Oswal Financial Services.

However, fears about an impending global slowdown capped the upside. A spike in Covid cases in China and the gas crisis in Europe continue to be a cause for concern. China’s zero-Covid policy faced fresh challenges after a jump in new infections. Shanghai reported 24 new cases on Tuesday — the most in three weeks.

New cases in Shanghai raised fresh fears of another lockdown. The Shanghai Composite Index fell 1.4 per cent and the Hang Seng by 1.2 per cent.

“Global indications are still mixed. It’s too early to celebrate the recent rebound. We recommend continuing with a cautious approach and sticking with the themes that offer comfort, even during the downtick. The Nifty has the potential to inch towards 16,200. However, the upcoming earnings season will play a critical role in the sustainability of the rebound,” said Ajit Mishra, vice-president-research, Religare Broking.

The Fed’s latest monetary policy meeting details, which will be released on Wednesday, will give markets further cues about the extent to which the US central bank will tighten rates.

The market breadth was positive, with 1,751 stocks advancing and 1,556 stocks declining on the BSE. Auto and FMCG stocks gained the most, and their sectoral indices on the BSE gained 2.7 and 2.4 per cent, respectively.