Markets are rebounding even if Fed talks about curbing investors are alarming

Indian markets rebounded from losses in late Monday trading after remaining under pressure after a global sell-off.

A weak currency, rising crude oil prices and fears about the sustainability of inflows from foreign institutional investors due to the US Federal Reserve’s taper talks had heightened investor concerns in recent days.

The BSE Sensex rose by 230.01 points or 0.44% to 52,574.46 points. The Nifty climbed 63.15 points, or 0.40%, higher to 15,746.50.

Asia Pacific stocks were mostly lower. The Japanese Nikkei lost more than 3%, while the Hang Seng index in Hong Kong fell 1.28% and the South Korean Kospi fell 0.83%.

Investors continued to sell stocks as testimony from Federal Reserve officials suggested the shift to tightening monetary policy more quickly was a natural response to economic growth, and particularly inflation.

Analysts believe that gradual throttling is the most likely scenario for most economies, including India.

“Domestic stocks have seen a brisk rebound after seeing a steep gap-down opening today and again leaving weak global signals behind. In particular, the strong rebound in PSU banks was a major factor behind the market recovery, “said Binod Modi, Head Strategy, Reliance Securities.

While India’s falling number of Covid cases every day offers consolation, the reference to a third wave in the next six to eight months may raise new concerns in the country.

However, the effects of the third wave may be the smallest compared to the first two waves.

“Minutes of the Reserve Bank of India (RBI) monetary policy meeting released on Friday were favorable and suggest a continued accommodative stance by the RBI to stimulate economic activity in the country,” Modi said.

Loose lockdown measures and moderation of cases have triggered a snapback in mobility as expected, according to Nomura.

“A third wave of pandemics in the next few months is a key risk that needs to be monitored,” said a press release.

The Nomura India Business Resumption Index (NIBRI), which tracks high frequency data, rose to 81.3 in the week ended June 20, up 6.4 percentage points from the previous week.

According to Credit Suisse Wealth Management, India, Indian markets could remain vulnerable to some profit posting, particularly from overseas portfolio investors (FPIs).

The outflows will be limited, however, as underlying India fundamentals have strengthened and expectations of faster vaccination and opening up of the economy will continue to keep buying interest in corrections high.

“India’s valuation premium has reached 12% and 55%, respectively, compared to the historic five-year averages of 8% and 45% for the MSCI World and MSCI Emerging Markets, respectively. We expect India’s valuation premium to remain high as it offers one of the fastest growth rates in the region. In addition, robust FPI inflows and improving company fundamentals such as balance sheet health and return on equity also support the higher valuation premium, “said Jitendra Gohil and Premal Kamdar, analysts at Credit Suisse Wealth Management, India, in a June 18 release.

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