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Markets find their feet after roller-coaster ride

Shares dropped more than 2 per cent in early trade when BJP was trailing Congress in MP.

ET Bureau|
Updated: Dec 12, 2018, 08.02 AM IST
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Local funds net bought shares worth Rs 2,256 crore, according to provisional data.
Mumbai: Shares ended firm on Tuesday after a roller-coaster, over-500-point swing, as investors felt the ruling BJP’s losses in key state elections were not as bad as feared. Bank stocks rose sharply as the unexpected resignation of Reserve Bank of India governor Urjit Patel spurred hopes that the central bank, under a new leadership, would relax some of the stringent regulations and rules governing lenders.

Shares dropped more than 2 per cent in early trade when BJP was trailing Congress in Madhya Pradesh, Chhattisgarh and Rajasthan, but recovered after the race in two of the three states became close and investors felt BJP had not been routed as feared. Congress just about crossed the majority mark in Rajasthan, swept Chhattisgarh and had an edge over BJP in Madhya Pradesh at the time of going to press.

“The market was panicking initially after the RBI governor’s resignation. It was also felt the election results could unleash havoc. But the market recovered as the results were not as bad as expected,” said A Balasubramanian, chief executive officer at Aditya Birla Sun Life AMC.

The Nifty rose 60.70 points, or 0.6 per cent, to end at 10,549.15 while the Sensex gained 190.29 points, or 0.5 per cent, to close 35,150. The India volatility index (VIX) fell 11.5 per cent to 18.08 with all Nifty sectoral indices ending in the green.

At 2.5 per cent, the Nifty PSU index surged the most while the BSE midcap and smallcap indices rose 1.5 per cent each. Foreign portfolio investors dumped Indian shares worth Rs 2,421 crore on Tuesday — the biggest net sale by these entities in a month. Local funds net bought shares worth Rs 2,256 crore, according to provisional data.

Yes Bank ended up 7 per cent at Rs 177.40 and was the top gainer on the Sensex, followed by Sun Pharma, Asian Paints, State Bank of India, Axis Bank and ITC — which gained 2-6 per cent.

“The long-term view on India does not change as the macro fundamentals remain solid and the bullish secular themes are still intact,” said John Praveen, senior portfolio manager at QMA, a PGIM company.

Praveen said the RBI governor’s resignation does raise short-term concerns about whether the government will continue to undermine the central bank’s independence and credibility, and whether tensions between the two sides will impede monetary policy and the banking regulator’s ability to address the issue of bad loans.

Late on Tuesday night, former economic affairs secretary Shaktikanta Das was appointed the governor of the Reserve Bank of India.

Markets are likely to trade with a negative bias in the coming weeks given the global headwinds after the higher-than expected production cut by Opec and the resurgence of US-China trade tensions after the arrest of Chinese smartphone maker Huawei’s CFO.

“The market had discounted the election results in the 600-point fall on Monday, so there was no further decline on Tuesday,” said Ravi Muthukrishnan, head of institutional research at Elara Securities. But he added that the markets are expected to be “volatile with a downward bias” in the short term.

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