Rally in Adani Group stocks keeps up market rally for the second session

Despite concerns about global interest rates and higher valuations that could fuel volatility in the near term, analysts suggest that they see a near-term bounce

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Indian markets continued to rally for the second session as the rebound in Adani Group stocks kept investor sentiment upbeat. Despite concerns about global interest rates and higher valuations that could fuel volatility in the near term, analysts suggest that they see a near-term bounce.

“Adani Group development will also lead to better sentiments for the market and increase retail participation, which was down due to uncertainty. The investment also leads to a belief that the Adani Group stocks have stabilised and can raise capital if they want at current prices. This development should support the banks, especially PSU Banks, which were hammered earlier, despite good performance due to fear of their exposure to the Adani Group,”  said Naveen Kulkarni, Chief Investment Officer, Axis Securities.

“We expect the markets to have a short-term bounce back due to increased optimism, but are still concerned about global interest rates and higher valuations, which can lead to increased medium-term volatility. We advise investors to maintain investment discipline and keep investing regularly in equities for long-term wealth creation, especially if the markets are volatile in the short to medium term” Kulkarni said.

By 11.30am, the benchmark Sensex had gained 1 percent or 580 points to trade at 60,388, while the Nifty gained 1 percent or 175 points to 17,769. Let’s take a look at the factors that drove the markets higher on March 6.

Adani Group developments

Adani Group companies experienced a surge in their stock prices after news broke of a portfolio investment totaling Rs 15,446 crore by a US equity investment boutique. The investment included the purchase of shares in companies like Adani Enterprises, Adani Ports & SEZ, Adani Green Energy, and Adani Transmission, worth Rs 5,460 crore, Rs 5,282 crore, Rs 2,806 crore, and Rs 1,898 crore, respectively.

The proceeds from the sale will be utilised by the promoters to pay off debt and for other purposes. Over the past five sessions, the stocks of Adani Group companies have been on the rise, with Adani Enterprises experiencing a remarkable increase of 78.4 percent. Adani Ports & SEZ climbed for eight straight sessions with a growth of over 30 percent during this period. Adani Green Energy, Adani Power, and Adani Wilmar hit the 5 percent upper circuit for five sessions, while Adani Transmission and Adani Total Gas have hit the upper circuit for four straight sessions.

Attractive valuations

Despite lingering concerns over global macroeconomic and geopolitical tensions, the recent sell-off in Indian equities has made some sectors attractive on the valuation, according to analysts.

Last week, the Realty and PSU Bank indices were the top gainers, jumping nearly 9 percent and 10 percent, respectively. Nifty Metal and Nifty Bank scaled nearly 4 percent, and Nifty MidCap and SmallCap advanced 2 percent and 1.5 percent.

S&P Global India PMI Service

On Friday, a statement revealed that the S&P Global India Purchasing Managers Index for services increased to 59.4 in February, up from 57.2 in the previous month. This rise in services activity lifted the composite index to 59 from 57.5 in January. A reading above 50 indicates expansion, while a reading below 50 indicates contraction in activity.

This is the highest reading since February 2011 and provides some relief after gross domestic product growth slowed in the last quarter of 2019, with manufacturing contracting and services activity moderating.

However, the slowing of exports due to waning global demand and faltering consumption resulting from rising interest rates may impede the recovery of Asia’s third-largest economy.

Last rate hike in April by RBI?

India’s GDP growth for the final quarter of last year was bigger-than-expected, indicating that the economy is beginning to feel the impact of interest-rate hikes. Available data for the current quarter suggests a further slowdown, which means that the Reserve Bank of India’s expected rate increase at the April review may be its last for this cycle, according to Bloomberg economist Abhishek Gupta.

In the fourth quarter, GDP growth dropped to 4.4 percent year-on-year, down from 6.3 percent the last quarter, which was lower than both the Bloomberg Economics forecast of 4.6 percent and the consensus estimate of 4.7 percent.

Trade deficit narrows

India’s trade deficit in January narrowed to  $17.75 billion from $23.76 billion in December.  India’s external position remains stable with narrowing of merchandise trade deficit, higher services exports and more than-expected remittance growth.

Reserve Bank of India Governor Shaktikanta Das expects India to get more overseas inflows and the current account deficit to ease hereon.  Imports in January saw a decline of 3.63 per cent to $50.66 billion while exports in January dipped by 6.58 per cent to $32.91 billion.

High GST collections

Despite a global economic slowdown, domestic economic activity in India remained strong, as demonstrated by the second-highest Goods and Services Tax (GST) collections of Rs 1.6 lakh crore in January 2023. For 11 consecutive months, GST collections have been above the Rs1.4 lakh crore mark.

Upbeat global markets

Global markets saw a boost in sentiment after Atlanta Fed President Raphael Bostic’s comments on Thursday that the central bank may halt its rate hikes this summer, with Dallas Fed President Lorie Logan also confirming that decisions on rate increases would be data-driven.

Meanwhile, China’s target for economic growth this year is set at around 5 percent, lower than the anticipated 5.5 percent. In Asian stocks, a two-month low was overturned after data was released, showing that China’s manufacturing activity had grown at the quickest rate in over ten years in February, offsetting concerns over increasing interest rates.

As a result of the lifting of Covid-19 restrictions, production increased significantly, causing China’s official manufacturing purchasing managers’ index (PMI) to surge to 52.6 in February from 50.1 in January, surpassing market expectations and boosting investor confidence.