India’s benchmark stock index Sensex rallied 390 points last Friday, capping its best week since February 2021 and scaling a seven-week high. The 30-share BSE index rose 4.3% while the NSE Nifty 50 index was up 4.2% for the week as foreign investors ploughed about $1 billion into equities.
The breather came after quite a long time. Overseas funds have been on a selling spree since October 2021, when the Indian markets peaked. Since then, they have pulled out $35 billion from the markets with nearly $30 billion of that in 2022 alone.
Last week, foreign investors marked their first net buying in 16 weeks. This has also helped the monthly foreign flow tally turn positive for the first time since September 2021.
Commodity prices have been on a downward slope amid fears of a demand slowdown. Meanwhile, economists see the US and Europe entering recession by 2023. Given this, investors believe that central banks may not be as aggressive in their monetary tightening approach as factored in earlier.
Commodities like steel, crude, and palm oil have corrected sharply over the last few weeks. While Brent crude has shed around 13% from the year’s high, palm oil prices have dropped around 30% from the peak. This has been comforting given the country's rising import bill. Further, with retail inflation moderating for a second consecutive month in June, to 7.01%, investors are betting on hopes that inflation may have peaked in India.
Speaking to Business Standard, Siddhartha Khemka, Head of Research (Retail), Motilal Oswal Financial Services says interest rate hikes have been factored in, commodity prices are easing. Valuations are comfortable for FIIs to come back, he says. FII inflows should become stable and US Fed decision should not impact FII flows in a big way, he says.
Amid an upbeat mood, US indices have risen 4-7 per cent in the last five sessions as corporate earnings have fared better-than-expected. Among the big names, Netflix reported a lower fall in subscriber count, while Tesla beat Wall Street's revenue estimates, despite the shutdowns in China. Of the roughly 90 companies that have so far reported numbers from the S&P 500 universe, nearly 78% have reported earnings above analysts' expectations, according to a CNBC report.
Corporate earnings, back home, have also been better than expected. IT majors have delivered decent revenue growth despite a hit on profit margins, and the companies remain confident about a sustained demand momentum. FMCG major HUL posted robust topline and bottom-line growth with much better volumes. Among others, HDFC Bank and IndusInd Bank also posted healthy numbers.
UR Bhat, the co-founder of Alphaniti Fintech, said that bad loans seem to be under reasonable control, adding that the demand for credit going up gives some of the larger banks pricing power.
Economists expect the US Federal Reserve to opt for a 75 basis point rate hike rather than a large move at its next meeting as the likelihood of recession rises.
A weakening US dollar, valuations turning comfortable in India, buying by foreign investors, hopes of inflation peaking and that the US Fed may be less aggressive in hiking rates are helping Indian stocks stage a recovery.
 "What drove the bull run in the markets last week?")
