EQUITIES

Liquidity continues to drive up markets, benchmarks gain 6% in a week

Friday’s rise in the benchmark indices was driven by banking stocks.

Liquidity continued to drive Indian equities, which ended the week with 6% gains. The rally was fuelled by European Central Bank (ECB)’s additional fiscal stimulus, continued buying of Indian equities by overseas investors and optimism surrounding the exiting of lockdowns by countries globally.

Friday’s rise in the benchmark indices was driven by banking stocks. The 30 share index Sensex gained 306.54 points or 0.9% to close at 34,287.34. The broader Nifty50 closed at 10,142.15, up by 113.05 points or 1.13%.

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The benchmark Nifty gained more than 316 points since Monday’s trading session, Nifty Bank as well ended its week higher by 9%, outperforming the benchmark’s gains.

Foreign portfolio investors (FPIs) have pumped in $2.59 billion in Indian equities as on June 4. According to the provisional data on exchanges, FPIs on Friday bought shares worth $12.92 million, whereas domestic institutional investors bought shares worth $6.2 million.

The global rally is fuelled by the anticipation of more stimulus measures such as that announced by ECB on Thursday to help a revival. Indian markets rose in line with its global peers. Asian bourses in China, Taiwan and South Korea were up between 0.4% and 1.43%. Hong Kong’s Hang Seng was up by 1.6%.

European indices, too, were up at the time of press with stock markets in the UK, Germany and France up in the range 1.19-1.9%. Dow Jones mini futures were up by 659 points.

Market experts have noted that the opening up of the economy and exiting of lockdown is accompanied by the rise in Covid-19 cases in India. Kotak Institutional Equities in its report said, “While the positive sample rate is very high and increasing in Maharashtra, Gujarat and Delhi, it is also on the rise in the rest of India. Karnataka, West Bengal and Delhi have the highest growth rate in number of confirmed cases.”

This shows that the threat of a second wave of Covid-19 cases and the economic costs attached with it still looms. ICICI Securities in its report said, “As the lockdown eases the fear of a second wave is real and will add to uncertainty on economic outcomes. China will be keenly watched as it enters the third month since the end of the first wave. Currently, India is still under the grips of the first wave but the recovery rate has been increasing and death rate is moderating.”

Banking stocks have been gaining momentum for the past two weeks. According to a report by Jefferies, banks are currently more confident on the borrowers’ cash flows as lockdown has been relaxed and white-collar job losses have been limited.

Banks are discouraging borrowers from generously taking moratoriums through steps like offering moratoriums only for one-month at a time, informing about cost of moratorium and switching from ‘opt-out’ to ‘opt-in’ structure.

“If the above trends could continue, loans under moratorium for banks can decline over next three months. On the other hand, NBFCs are continuing with ‘opt-out’ approach due to uncertainty on borrower cash flows. So share of their loans under moratorium can stay high, but what’s encouraging is that their collections have improved from 30-35% in April to 40-50% in May and expectation for June is around 60-70%,” said Jefferies in its report.

Additionally, the stock of SBI rose sharply during the last hour of trade after the company announced a four-fold jump in its profit to Rs 3,580.81 crore beating Street estimates. The company also reported a sequential decline in its gross non-performing assets.

The shares of the public sector giant rose by 8.73% to close at Rs 189.25 a piece. Nifty Bank gained 3.16% during the day’s trading session and its top gainers were Punjab National Bank, Bank of Baroda, SBI, Bandhan Bank and IDFC First Bank up by 9.8%, 9.7%, 8.73%, 7.3% and 6.3%, respectively.

On the NSE, F&O volumes stood at Rs 8.79 lakh crore against the six-month average of Rs 13.9 lakh crore. The cash market witnessed volumes worth Rs 64,333.24 crore against the six month average of Rs 43,047.1 crore, data on NSE showed.

The biggest gainers on Nifty were Tata Motors, SBI, Bharti Infratel, Tata Steel and Hindalco, which were up by 13.6%, 8.79%, 8.2%, 6.2% and 4.8%, respectively. The biggest losers were TCS, Hindustan Unilever, Bajaj Auto, Cipla and Nestle India down by 1.84%, 1.58%, 1.36%, 0.9% and 0.7%.

Sectorally, the biggest gainers were Nifty PSU Bank, Nifty Media, Nifty Metal, Nifty Bank and Nifty Private Bank. The only loser was