It’s too early to call it a recovery, but over the past three weeks, the 30 stock BSE Sensex has recovered more than 20 per cent of its value. At 15,168, the Sensex is up 21 per cent from its July 16 value of 12,576, a 16-month low. This is the biggest rise in the past seven months, since the market started to slip after the January bloodbath.
The five heavyweights that comprise the Sensex --- Reliance Industries, Infosys, ICICI Bank, Larsen and Toubro and HDFC --- and have a combined weight of 43 per cent in the index, rose almost 30 per cent, with HDFC and ICICI Bank shooting up by over 40 per cent.
Behind this rise seem to be two big movers. Oil, the prices of which have fallen and political stability which has brought with it optimism around three key reforms in pensions, insurance and banking, as well as expected disinvestments in some companies.
Of these, softening oil prices has been the single important factor that has brought some momentum back into a market that has been gasping for breath over the past seven months. “If oil remains around $110 per barrel over the next few months, global growth will again pick up steam,” said Ketan Karani, vice president (research), Kotak Securities.
Looked at in a narrow context, the rise seems to have had an inverse relationship with oil prices. While the Indian market has gained more than 20 per cent over the past three weeks, the Europe Brent Spot Price in the same period has fallen by 22 per cent.
Correction in the prices of other commodities has helped too. “It has led to the movement of money from commodities back into equities,” said Karani.
Indian markets remain very sensitive to the global oil price movement as oil is a major import item for India. The country imports 70 per cent of its oil requirements.
The bigger question is: will this rise sustain? “There are issues like Iran-Israel tension, while the US sub-prime issue is still hovering around,” said Sanjay Sinha, chief investment officer, SBI Funds Management. “The estimated size of sub-prime losses amounts to $1.3 trillion and the full write-offs may take more than 18 months.”