Rupee rebound, global rally fire up Sensex

MUMBAI: The unexpected rebound in the rupee coupled with hopes of fresh action on the eurozone crisis gave stock market a respite from the recent bear grip.

India’s main indices posted their biggest single-day gains in three months on Monday, mirroring the rise in global stock markets, which jumped on reports that the International Monetary Fund (IMF) is considering helping Italy, though the agency denied it later.

The markets also cheered news of France and Germany working on a plan to restrict budget overspending in the eurozone. But, the consensus among analysts is that the rally, which comes after four straight weeks of losses, lacks steam because it was largely led by short-covering.

The Sensex rose 463.67 points, or 2.95%, to close at 16,159. The Nifty gained 141.25 points, or 3%, to 4851.30. Analysts said stocks could sustain the bounce despite IMF denying support to Italy, largely because of the rise in the rupee.

“The rebound on Monday was largely driven by short-covering by foreign institutions that also sparked a bounce-back in the rupee,” said Saurabh Mukherjea, head--equities, Ambit Capital.

“But, it remains to be seen how sustainable this rebound is as the undertone fundamentally is still pessimistic because Europe is still a big issue and investors are sceptical about the extent to which our government can pass reforms,” he said.

Foreign institutions net sold shares worth Rs 300 crore, according to provisional data. The rupee closed at 51.95 per dollar, up 27 paise, or 0.51%, from its previous close at 52.22.

But, analysts are not hurrying to change their forecasts of a decline in the rupee, which hit a record low of 52.73 against the dollar on November 22, over the next month or so. A further drop in the rupee will bloat India’s import bill, in turn fuelling inflation. Moody’s Investors Service poured cold water on the market’s optimism after it painted a gloomy picture of the eurozone crisis on Monday. The ratings agency said the escalation of the continent’s debt crisis is threatening the region’s sovereign ratings.

Credit risks will continue to rise without measures to stabilise markets in the short term, Moody’s said.

Analysts will closely watch the outcome of the bond auctions from eurozone countries this week that will determine the direction of the markets in the near future.