Indian stock markets surged on Wednesday, with the Sensex crossing the 51,000 mark for the first time in nearly three months, as the Nifty approached its all-time high.
Investor sentiment has turned more bullish after a steady decline in the daily number of cases and an improvement in cure rates for those affected by the infection. This has raised hopes of easing restrictions in several states and a faster-than-expected recovery in Asia’s third-largest economy after the turmoil caused by the pandemic.
BSE Sensex climbed 379.99 points or 0.75% to close at 51,017.52. The 30-stock index last closed above the 51,000 mark on March 10.
The Nifty is nowhere near its record by a hair, finishing at 15,301.45, up 93 points or 0.61%. It reached a lifetime high of 15,431.75 on February 16.
Binod Modi, Head of Strategy at Reliance Securities, said: “Domestic stocks remained bullish as improved visibility into the economic recovery from Q2 FY22 continued to strengthen investor sentiment. . In addition, the robust earnings of T4FY21 and favorable comments from management also helped uplift sentiment. Going forward, the likely announcement of the phasing out of state-level lockdowns in the coming weeks and the resumption of economic activity can potentially help the market sustain the recovery in the short to medium term. “
Modi said weaker US bond yields and the weakness of the dollar index could provide additional comfort, which may essentially lead the flow of foreign institutional investors (FIIs) to turn favorable. Investors will continue to focus on the trajectory of the daily number of coronavirus cases and the ramp-up of vaccination in the country in the near term.
FIIs have remained net sellers of Indian equities, but the pace of sales is narrowing. The FIIs have sold Indian stocks worth $ 232.61 million in May so far, while domestic institutional investors have bought stocks worth $ 232.61 million. ₹938.44 crore during the month.
Investor optimism, however, comes at a time when economic activity has been hit hard by regional lockdowns that have led economists to cut their FY22 gross domestic product (GDP) forecast by several notches.
The Nomura India Business Recovery Index (NIBRI), which tracks various high-frequency data, fell to 60 for the week ending May 23 from 63 the week before, to levels last seen in June 2020, after fully recovering in February.
Sonal Varma and Aurodeep Nandi, economists at Nomura, said the index’s continued sharp decline indicates that the worst impact on business will come in May.
“The lockdowns appear to last until June, but a few states are announcing a slow pullback in restrictions as their number of virus cases declines, suggesting a sequential improvement in activity in June.” For a sustainable recovery, the pace of vaccination must also accelerate, which should happen after June, ”said Varma and Nandi. Barclays economists fear that slow vaccinations and phased shutdowns are weighing on India’s recovery. Barclays further reduced its GDP forecast for this fiscal year to 9.2%, a reduction of 80 basis points from its previous forecast.
Barclays estimates that a third wave of coronavirus infections in India will increase economic costs by at least an additional $ 42.6 billion, assuming another equally stringent round of lockdowns are imposed for eight weeks. If India is hit by a third wave, Barclays reckons it should further reduce its GDP forecast for fiscal 22 to 7.7%. Meanwhile, India’s volatility index or VIX rose 10.77% to 20.87, indicating that investors are anxious and nervous about the future of the markets.