Sensex, Nifty rise over a percent each to new highs, 5 key factors behind the rally

Sensex, Nifty rise over a percent each to new highs, 5 key factors behind the rally

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Across-the-board buying following positive global cues boosted domestic equities to fresh highs in the intraday trade on August 30.

Flagship indices the Sensex and the Nifty rose over a percent each to hit record highs of 56,958.27 and 16,951.50, respectively, in intraday trade.

In sync with the benchmarks, the BSE midcap index, too, made a fresh peak of 23,671.98.

At close, the Sensex was 765 points, or 1.36 percent, up at 56,889.76, while the Nifty was 226 points, or 1.35 percent, up at 16,931.05.

The BSE Midcap and smallcap indices closed with gains of 1.72 percent and and 1.55 percent, respectively.

“Following a strong gap-up opening, equity benchmark indices maintained the trend throughout the day in line with the strength in global markets. Global markets strengthened as the anxiety over the Jackson Hole symposium subsided following the dovish tone of the Fed Chair. Jerome Powell stated to stick with the wait-and-see approach giving reassurance that the easy money policy will continue this year with a smaller rate of tapering,” said Vinod Nair, Head of Research at Geojit Financial Services.

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Here are 5 key reasons that could have pushed the market to record high levels:

1 US Fed’s dovish stance

US Fed chairman Jerome Powell’s dovish stance seems to have boosted market sentiment. Powell hinted that the US central bank is not willing to quickly move towards raising rates.

The post-pandemic rally in the market has been mostly liquidity -driven and participants believe the market has more steam left as the liquidity tapering exercise is not likely to begin as early as was anticipated.

“The much-awaited Fed commentary after the Jackson Hole Symposium has indicated that ‘it would be appropriate to start reducing asset purchases this year’. But the Fed chief has hastened to add that there is much ground to cover before rate hikes. So, even though this can be treated as the beginning of normalisation of the accommodative policy, the communication is smart enough not only to calm the markets but to enthuse it too,” said VK Vijayakumar, Chief Investment Strategist, Geojit Financial Services.

2 Positive global cues

The positive sentiment of major global markets spilled on to the Indian market. Most Asian markets traded in the green after the US Fed chair’s dovish stance on the course of monetary stimulus and rate hikes.

Among the Asian peers, Nikkei, Hang Seng and KOSPI were in the green.

3 Macro factor

The foreign direct investment (FDI) into the country rose more than two folds to $17.57 billion during April-June this fiscal on account of measures such as policy reforms and ease of doing business, an official statement said on August 28.

Total FDI inflow rose to $22.53 billion during the first three months of 2021-22 as against $11.84 billion in the same period last year, it said. Total FDI comprises equity inflows, reinvested earnings and other capital.

FDI equity inflow grew by 168 per cent in the first three months of 2021-22 ($17.57 billion) compared to the year-ago period ($6.56 billion), it said.

“Indian benchmark indices started the week on a positive note, hitting fresh record highs. Traders are taking encouragement as foreign direct investment (FDI) into the country rises,” said Gaurav Garg, Head, Research, CapitalVia Global Research.

Besides, investors await the release of key economic data such as Q1GDP growth rate and manufacturing and services PMI prints. Analysts and economists believe the Q1 GDP prints may show a strong rebound

year-on-year due to the low base of the last year.

4 Rupee’s rise

The rupee’s rise against the dollar also seems to have influenced sentiment. The Indian rupee appreciated 31 paise to 73.38 against the dollar in the opening trade on August 30.

At the interbank foreign exchange, the rupee opened at 73.46 against the dollar, then surged higher to 73.38, up 31 paise over its previous close.

5 Technical factors

Analysts point out that the Nifty is trading with a positive bias and one should avoid taking any contra trades at this juncture until any reversal is seen.

“The immediate supports for the Nifty are placed around 16,600 and 16,500, while the levels to watch on the upside will be 16,800 and then 17,000,” said Ruchit Jain, Senior Technical and Derivatives Analyst, Angel Broking.

As per CapitalVia Global Research, 16,500 is an important support level for Nifty in the short term. If the market sustains above it, we can expect it to remain positive and gain momentum, leading to an upside move till 16,900-17,000 level, it said.

The views and investment tips expressed by experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

Top 10 things to know before the market opens

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The Indian stock market is expected to open in the green as trends on SGX Nifty indicate a positive opening for the index in India with a 18 points gain.

The BSE Sensex rallied 546.41 points or 1.02 percent to close at 54,369.77, while the Nifty50 rose 128 points to 16,258.80 and formed bullish candle on the daily charts.

According to pivot charts, the key support levels for the Nifty are placed at 16,193.27, followed by 16,127.73. If the index moves up, the key resistance levels to watch out for are 16,307.27 and 16,355.73.

Stay tuned to Moneycontrol to find out what happens in the currency and equity markets today. We have collated a list of important headlines across news platforms which could impact Indian as well as international markets:

US Markets

U.S. stocks closed mostly lower on Wednesday, with the S&P 500 falling from a record high after data signaled a slowdown in jobs growth in July, and General Motors tracked its worst day since early March.

The Dow Jones Industrial Average fell 323.73 points, or 0.92%, to 34,792.67, the S&P 500 lost 20.49 points, or 0.46%, to 4,402.66 and the Nasdaq Composite added 19.24 points, or 0.13%, to 14,780.53.

Asian Markets

Shares in Asia-Pacific were mixed in Thursday morning trade, following declines overnight on Wall Street. Japan’s Nikkei 225 gained 0.31% in morning trade while the Topix index advanced 0.25%. South Korea’s Kospi stood little changed.

SGX Nifty

Trends on SGX Nifty indicate a positive opening for the index in India with a 18 points gain. The Nifty futures were trading at 16,278 on the Singaporean Exchange around 07:30 hours IST.

Oil falls

Oil prices fell for a third day in a row to a two-week low on Wednesday on a surprise build in U.S. crude stockpiles, negative U.S. economic report and worries the spread of the coronavirus Delta variant will weigh on global energy demand.

Brent futures fell $2.03, or 2.8%, to settle at $70.38 a barrel, while U.S. West Texas Intermediate (WTI) crude fell $2.41, or 3.4%, to settle at $68.15.

Maintain current A/Cs in ‘appropriate number’ of banks: Sebi to mutual funds

Markets regulator Sebi on Wednesday asked mutual funds to maintain current accounts in an appropriate number of banks for receiving subscription amount and payment of redemption and dividend. The move is aimed at facilitating financial inclusion, convenience of investors and ease of doing business, the Securities and Exchange Board of India (Sebi) said in a circular.

“Based on the request of mutual fund industry, it is clarified that mutual funds should maintain current accounts in an appropriate number of banks for the purpose of receiving subscription amount and for payment of redemption/dividend/brokerage/ commission etc,” Sebi said.

US services sector index races to record high in July -ISM survey

A measure of US services industry activity jumped to a record high in July, boosted by the shift in spending to services from goods, but businesses continued to face rising prices because of supply chain constraints.

The Institute for Supply Management said on Wednesday its non-manufacturing activity index raced to 64.1 last month, the highest reading in the series’ history, from 60.1 in June.

Results on August 5

GAIL India, Cipla, Adani Power, Aditya Birla Capital, Indiabulls Housing Finance, Accelya Solutions India, Ador Welding, Andhra Petrochemicals, Arvind, Bajaj Consumer Care, Birla Corporation, Brigade Enterprises, Cera Sanitaryware, Edelweiss Financial Services, Escorts, Gujarat Gas, Hikal, Honeywell Automation India, Ipca Laboratories, Jubilant Industries, NCC, Narayana Hrudayalaya, PTC India Financial Services, Prince Pipes and Fittings, Quess Corp, REC, Thermax, and TTK Healthcare.

Yields rise off lows after Fed’s Clarida backs rate expectations

US Treasury yields bounced higher on Wednesday after a top U.S. Federal Reserve official backedexpectations for higher interest rates, shifting traders’ focus away from a disappointing payroll report.

The benchmark 10-year yield was up 3.3 basis points at 1.207% in late-morning trading. It previously touched 1.127%, its lowest since February. Yields rose as Fed Vice Chair Richard Clarida spoke at an online economic event. Clarida said he could envision a taper in bond purchases later this year, and that the U.S. economy is on track to meet hurdles the central bank has set for raising interest rates.

FII and DII data

Foreign institutional investors (FIIs) net bought shares worth Rs 2,828.57 crore, while domestic institutional investors (DIIs) net sold shares worth Rs 411.36 crore in the Indian equity market on August 4, as per provisional data available on the NSE.

Stocks under F&O ban on NSE

Three stock - Canara Bank, Indiabulls Housing Finance and Sun TV Network - is under the F&O ban for August 2. Securities in the ban period under the F&O segment include companies in which the security has crossed 95 percent of the market-wide position limit.

With inputs from Reuters & other agencies

Indian equities outperform global peers, Nifty50 surges 18% YTD; will the trend continue?

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Indian equity markets staged strong show not only in the last one year but also year-to-date (2021), which is attributable to recovery in growth factors especially after easing Covid-led restrictions, healthy earnings, government and RBI measures, and ample of global liquidity.

The Nifty50 shot up 17.95 percent from the January till August 13, 2021, driven largely by infrastructure, IT, Metals, Energy, Auto and Banking & Financial stocks.

The benchmark index surpassed 16,500 mark for the first time today, hitting a fresh record high of 16,543.60, indicating the month of August is very strong especially after the states in India further eased restrictions which is ultimately expected to boost the further recovery in the economy as well as earnings.

In the same period (YTD), global indices namely Dow Jones Industrial Average surged 15.99 percent, Nasdaq Composite gained 14.96 percent, DAX was up 16.29 percent, FTSE 100 gained 11.65 percent, Kospi was up 10.36 percent, Nikkei 225 up 1.94 percent and Shanghai Composite up 1.24 percent.

“The markets are a function of earnings in the long term and liquidity in the near term. Move away from physical assets and low fixed income rates is leading to significant flow into equities. There is no sign that this migration is going to change anytime soon. This is the short term perspective,” Susmit Patodia, Director, Portfolio Manager at Motilal Oswal Asset Management Company told Moneycontrol.

“Longer term, earnings have been extremely strong as well. We have been in an upgrade cycle for nearly last 4 quarters which has not happened in the last 10 years,” he said.

The Indian index Nifty50, however, underperformed only two major indices which are S&P500 that gained 18.76 percent and CAC 40 that rallied 24.17 percent.

All the central banks so far decided to keep the rates low and maintain the liquidity flow till the consistency in global economic growth, though they are keeping in mind the risk of Covid-19 waves.

“The recovery remains uneven across sectors and needs to be supported by all policy makers. The Reserve Bank remains in “whatever it takes” mode, with a readiness to deploy all its policy levers - monetary, prudential or regulatory. In parallel, our focus on preservation of financial stability continues. At this juncture, our overarching priority is that growth impulses are nurtured to ensure a durable recovery along a sustainable growth path with stability,” said the RBI Governor, Shaktikanta Das in its monetary policy meeting.

Going ahead experts feel the momentum is expected to be supported by the strong earnings activity, flow of liquidity and expected nearly double digit economic growth in FY22.

“Equity valuations are ahead of their fundamentals owing to the signs of growth recovery, government spending and healthy demand outlook from rural economy. This combined with healthy liquidity conditions leads to exuberance in markets and hence, the current rally,” said Rajesh Cheruvu, Chief Investment Officer at Validus Wealth.

Prasun Gajri - Chief Investment Officer at HDFC Life feels while the markets may continue their upward move, what matters, in the end, is the nature of the underlying portfolio as the fundamentals eventually catch up.

“It is always important to focus on individual stocks and not just on the aggregate market indices. In the current market where stocks across the spectrum are moving up, it becomes doubly important to focus on stocks where the fundamentals are strong and the business models are robust,” he said.

The views and investment tips expressed by investment expert on Moneycontrol.com are his own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.