Continuing FII interest keeps market steady, banks gain

The Indian markets opened flat after yesterday’s spectacular rally when the country’s benchmark stock indices rose to their highest levels since January 2011 and the ten-year bond yields dropped to its lowest in more than three years, powered by record FII ( foreign institutional investors) inflow on expectations that easing inflation may prompt the RBI to cut rates. Moreover, monsoon expectations are also positive .

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At 9:16 am, the Nifty was up 0.18 percent or 11 points at 6159, while the Sensex was up 39 points at 20253. Bankex continues to trade well after yesterday’s solid gains; Yes Bank is up 2 percent, ICICI rose 1.2 percent, while SBI opened up almost 1 percent.

According to Sanjeev Zarbade, Vice President- Private Client Group Research, Kotak Securities, the strength of the rally has taken everyone by surprise.

“Globally, the market sentiment for equities has improved dramatically. The Dow Jones has been very firm and so has been the Nikkei, which hit a five year high. The domestic factors driving the rally include softer commodity prices, reducing under-recoveries on auto fuels and weakening inflation. The WPI Inflation for April came in at sub 5%, a level which was last seen in November 2009. Clearly, the rally has been partly fuelled by heightened expectations of further easing by the central bank going forward,” he said.

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However, he cautioned that a short-term buyer should be cautious since several interest rate sensitive stocks have moved up in anticipation of aggressive rate cuts by RBI.

Experts are also skeptical of the rally sustaining since the economy is still not out of the woods, given India’s widening current account deficit.

Investors might want to take some profit off the table later in the day.

Tirthankar Patnaik, Strategist & Economist does not recommend buying in the market right now unless earnings are sustainably better going forward.

In an interview to CNBC-TV18, he said that the market is probably right for some amount of profit booking because we are not seeing clearly earnings moving up. “First half of the earnings fared really well. This is essentially a repeat of what we saw on the third quarter. First half was fairly, second quarter was disappointing,” he elaborated.

The Finance Minister P.Chidambaram has left for a five-day journey to various world capitals, continuing his roadshows to present India as an attractive investment destination.

Government in a bid to provide an alternative to gold to hedge against inflation has decided to roll out inflation indexed bonds (IIBs). The first tranche of IIBs would be issued on June 4.

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