Indices extend gains but rupee hits a fresh low; Sensex surges 934 points

India’s benchmark indices continued their recovery on Tuesday, along with global peers, as appetite for risk assets got a boost after US President Joe Biden stressed that a recession in the world’s biggest economy was avoidable. But a day after registering a strong recovery, the rupee again breached the 78-mark against the dollar to hit a fresh low of 78.0825.

The Sensex ended the session at 52,532, following a jump of 934 points, or 1.8 per cent. The Nifty50 gained 288 points, or nearly 1.9 per cent, to settle at 15,639. Tuesday’s gain was the biggest for both indices since May 30.

The rupee, on the other hand, settled at a new record low against the dollar as a rebound in global crude oil prices stoked worries about India’s current account deficit and inflation. The partially-convertible rupee settled at 78.0825 against a dollar on Tuesday against Monday’s close of 77.9800. The previous record low (closing) for the domestic currency was 78.0700 on June 17.

According to dealers, consistent purchases of the dollar by state-owned banks on behalf of oil marketing companies dragged the domestic currency lower. Foreign banks were also purchasing the greenback for foreign institutional investors (FIIs) that are looking to exit Indian assets.

But in the equities markets, there was across-the-board buying on Tuesday and just one Sensex and two Nifty components ended in the red. Overall, 2,477 stocks advanced and 853 fell on the BSE. Banks, metals and IT stocks posted a sharp rebound, while Nifty Smallcap and Nifty midcap indices jumped close to 3.5 per cent each.

Equity investors became richer by over Rs 5.77 trillion on Tuesday, helped by the uptick in the broader market.

Market players also attributed technical factors to the rebound and said it is too early to call it a reversal in fortunes.

Among other Asian markets, benchmark indices in Hong Kong, Tokyo, and Seoul ended with smart gains, while Shanghai settled in the red. European bourses were trading in the green in mid-session deals. US indices, too, opened higher.

“Positive global cues, bottom fishing due to cheaper valuations, and short covering led to the rally. Nervousness in the markets will persist unless we see signs of inflation stabilising globally,” said Deepak Jasani, head of Retail Research, HDFC Securities.

After last week’s slump, Nifty valuations have fallen below their 10-year average, providing comfort to investors even though headwinds, such as sustained selling by foreign portfolio investors (FPIs), weakening rupee, cloudy economic growth, high inflation and interest rates, and elevated bond yields persist.

On Tuesday, FPIs sold shares worth Rs 2,701 crore, while domestic institutional investors were net buyers to the tune of Rs 3,066 crore.

“The absence of fresh selling triggers in the domestic and global economy, along with a decline in commodity prices, helped the markets recover. However, given the sensitive nature of the current market, even the slightest inconvenience can trigger volatility,” said Vinod Nair, head of Research at Geojit Financial Services.

Analysts said equities would struggle to sustain the recovery unless corporate earnings are significantly higher or the monetary policy stance of central banks is less hawkish. Some experts termed Tuesday’s gains as a bear market rally and said the overarching theme in the markets continues to be one of slowing economic growth and tighter financial conditions; they recommended investors “sell on rallies”.

“While the overall market set up remains ‘sell on the rise’, intermittent bouts of relief rally can’t be ruled out,” said Siddhartha Khemka, head of retail research, Motilal Oswal Financial Services.