Easing inflation and foreign inflow prospects give Indian shares a much-needed lift, with financials leading the charge.
Story Snapshots:
- Indian shares rose, driven by financial sector gains.
- Cooling domestic inflation and MSCI index weightage revision boost market sentiment.
- Retail inflation in India fell to a three-month low in January.
- MSCI index revision could result in over $1.2 billion in foreign inflows.
What factors have led to the rise in Indian shares? Indian shares have risen due to a rebound in the financial sector, easing domestic inflation, and the anticipation of increased foreign inflows following India’s higher weightage in the MSCI Global Standard index.
Indian financial markets experienced a notable upswing on Tuesday, with the NSE Nifty 50 index and the S&P BSE Sensex both registering gains. The optimism in the market was largely fueled by a rebound in financial stocks which had seen a drop in the previous session. Notably, eleven out of thirteen major sectors logged gains, showcasing a broad-based recovery.
Financials, which carry significant weight in the index, soared by 1.37%, seemingly buoyed by the cooling core inflation which dropped to a three-month low. This dip in inflation suggests a stabilizing macroeconomic environment, a crucial factor for market confidence. Furthermore, the global index provider MSCI’s decision to increase India’s weightage in its Global Standard index has sparked positive sentiment, potentially leading to a substantial influx of foreign portfolio investor (FPI) inflows.
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Analysts, including those from Sharekhan and Nuvama Alternative and Quantitative Research, anticipate that India could witness over $1.2 billion in FPI inflows due to the index revision. This could provide a significant boost to Indian shares as it indicates increased confidence in the Indian market by foreign investors.
Despite the rally in blue-chip stocks, the broader, more domestic-focused small-cap and mid-cap segments lagged behind, underperforming for the third consecutive session. According to experts, this recent correction is viewed as a healthy adjustment, clearing overvaluation in the segments and presenting new opportunities for entry into the market.
On the downside, the metals sector faced a downturn, with aluminium producer Hindalco taking a significant hit. The company’s shares fell sharply after reporting quarterly profits that fell short of expectations, impacted by sluggish aluminium sales and rising costs at its U.S. subsidiary, Novelis.
In contrast to the fortunes of the metal sector, fintech giant Paytm saw its shares plummet to a new low following a downgrade by brokerage Macquarie. Concerns about a potential customer exodus, exacerbated by the Reserve Bank of India’s recent clampdown on Paytm’s banking arm, contributed to the stock’s fall.
Asian markets also saw progress, with investors eagerly awaiting a key U.S. inflation report that could influence the Federal Reserve’s rate decisions. As global markets respond to these economic indicators, the Indian stock market’s current upturn could signal a period of growth, contingent on sustained macroeconomic stability and continued foreign investment.
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