Sensex Opens Over 200 Points Up; Banking Stocks Rally

Wed, 27 Mar 09:30 am

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Asian stock markets are higher today as Chinese and Hong Kong shares show gains. The Shanghai Composite is up 0.5% while the Hang Seng is up 0.5%. The Nikkei 225 is trading down by 0.6%. The US stocks gained on Tuesday, with financials snapping a five-day losing streak as Treasury yields stabilized above 15-month lows.

Back home, India share markets opened on a strong note. The BSE Sensex is trading up by 214 points while the NSE Nifty is trading up by 43 points. The BSE Mid Cap index and BSE Small Cap index opened up by 0.6% and 0.4% respectively.

All the sectoral indices have opened the day in green with bank stocks and capital goods stocks leading the pack of gainers.

The rupee is currently trading at 68.99 against the US$.

The rupee appreciated by 10 paise to close at 68.86 against the US dollar on Tuesday, following a robust response to the RBI's maiden rupee-dollar swap auction.

Sustained foreign fund inflows and heavy buying in domestic equities also propped up the local unit, the reports noted.

At the interbank forex market, the rupee opened strong at 68.88 against the greenback, but surrendered the gains to slip to a low of 68.98.

However, it clawed back lost ground and finally ended at 68.86, up 10 paise against its previous close of 68.96 per dollar.

The success of India's US$5-billion swap auction will decide whether it will become a popular instrument in the central bank's liquidity tool box.

Note that, the Reserve Bank of India (RBI) yesterday injected Rs 345.6 billion liquidity through its maiden long-term dollar-rupee swap auction. A better-than-expected market response signalled more such auctions in future.

The RBI received 240 bids worth US$16.3 billion at an average premium of Rs 7.92. The central bank accepted 89 offers totalling US$5 billion at a cut-off premium of Rs 7.76. These premiums represent what banks are willing to pay to the central bank at the end of the swap tenor, which is fixed at three years.

Moving on to other news. Mutual funds no longer seem to be the preferred choice for retail investors.

The net inflow in Indian mutual funds has dropped by two-thirds on a yearly basis to a six-year low in 2018-19 (till February), owing to higher volatility and low yields.

According to the Association of Mutual Funds in India (AMFI), the net inflow into mutual funds in FY19 till now stands at a mere Rs 1,320.6 billion, down 59.1% from Rs 3,225.5 billion till February last year.

Mutual fund inflows have consistently dropped for two consecutive years. During the first 11 months of the FY18, the net inflow into mutual funds had dropped by 18.9% from Rs 3,979.3 billion in FY17.

The last time the Indian mutual funds industry saw such a low inflow was back in FY12 when it had garnered a mere Rs 617.4 billion.

Reportedly, the volatility in the Indian stock markets in the past year has also contributed to the low inflow towards mutual funds.

That can be vetted from the fact that income funds, which mainly focus on generating regular income for investors by investing in high dividend generating stocks, government securities, certificate of deposits, corporate bonds, money market instruments and debentures, have seen the worst decline in the inflow in the past year.

Between April and February this year, the funds have seen a net outflow of Rs 1,349.8 billion, as against an inflow of Rs 78.7 billion in the corresponding period last year.

The chart below shows the inflow of domestic money into equity mutual funds.

Inflows into Equity Mutual Funds at 25-Month Low

You can see the net monthly inflows rising through 2016 and surging to unprecedented highs in 2017.

But the inflows slowed in 2018. After October 2018, the inflows into equity mutual funds have been dropping every consecutive month. In fact, in February 2019, the net inflows into equities, including those linked to savings scheme funds, declined to Rs 51.2 billion.

That's a 17% drop from January 2019, and a steep 69% plunge from a year ago.

To know what's moving the Indian stock markets today, check out the most recent share market updates here.

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