What factors have contributed to the rise in Indian shares, particularly in the financial sector? The rebound in financial shares, coupled with easing domestic inflation and the anticipation of foreign inflows following the MSCI’s index revision, has bolstered the Indian stock market.
Indian equities experienced a surge on Tuesday, led chiefly by a strong rebound in the financial sector. This uptick in the market comes after a period of easing inflation within the country, which has provided investors with a sense of macroeconomic stability and optimism.
The NSE Nifty 50 index rose modestly by 0.43% to reach 21,709.10, while the S&P BSE Sensex climbed 0.55% to 71,465.24 in the morning trade. A majority of the sectors saw gains, with financials leading the recovery. The financial sector, which holds the highest weight among the 13 major sectors, recouped 1.2% following a 1.4% decline in the prior session.
Conversely, the metals sector suffered losses, with aluminium manufacturer Hindalco Industries falling sharply by 13% after its U.S. subsidiary, Novelis, reported quarterly numbers that fell short of expectations. Hindalco’s stock was notably the most significant drag on the Nifty 50.
Jefferies analysts pointed out that Novelis is grappling with cost escalations at its greenfield facility, while its muted volume growth was a result of diminished demand.
Adding to the positive sentiment was the release of India’s January retail inflation data, which dropped to a three-month low, signaling a robust economic environment. Additionally, market sentiment was buoyed by Morgan Stanley Capital International’s (MSCI) decision to include five Indian stocks in its key index. This revision, which upped India’s weight to a record 18.2%, could potentially trigger passive foreign investor inflows estimated at $1.2 billion according to Nuvama Alternative and Quantitative Research.
On the other hand, profit booking persisted in the small and mid-cap segments of the market, with the CNX Small-cap and CNX Mid-cap indices dropping after significant falls in the previous session.
Dipan Mehta, CEO and Managing Director at Elixir Equities, indicated that investors might continue to shift their allocations from smaller caps to larger caps due to the high valuations of the former.
Meanwhile, Asian markets edged higher, anticipating a key U.S. inflation report that might influence the timeline for U.S. interest rate adjustments. In corporate news, Paytm saw an 8.5% dive to an all-time low following a downgrade by brokerage Macquarie, which cited concerns over customer retention after regulatory actions against Paytm’s banking arm. Conversely, Coal India’s shares increased by 2% after the company announced a third-quarter profit that exceeded expectations.
In summary, the Indian stock market’s recent gains underscore a cautiously optimistic outlook among investors, driven by a confluence of positive domestic economic indicators and favorable adjustments in global market indices.
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