Sensex surges 600 points, Nifty above 24,350. 7 key factors behind today’s D-Street rally

Sensex rose 650 points, while Nifty 50 above 24,350 on during Friday’s trading session. The sharp gains added nearly Rs 2.4 lakh crore to the total market capitalisation of all companies listed on BSE, pulling it up to Rs 482 lakh crore.

IT stocks continued to record strong gains, with HCL Tech, Tech Mahindra, Infosys and TCS shares rising 2-5% to lead gains on Sensex. Tata Steel, Bajaj Finserv and Bharat Electronics shares followed, rising more than 1% each. Bucking the trend, M&M shares fell nearly 1% on Friday morning.

Broader markets however sharply underperformed benchmarks, with Nifty Midcap 100 index rising only 0.2% and Nifty Smallcap 100 index rising 0.5% This came as India VIX, which volatility in the market, dropped over 1% to 12.13.

Sectorally, Nifty IT jumped more than 2% to lead gains. Nifty Metal also rose over 1.5%. Nifty Auto and Nifty PSU Bank indices however slipped into the red. The overall market breadth was positive, with 1,832 advances and 607 declines on NSE, while 91 remained unchanged.

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Here are the key factors boosting market sentiment today:

1) Fed rate hike worries cool down

US job growth slowed sharply in June and payroll gains for the prior two months were revised lower, data released on Thursday showed, pointing to a cooling labour market and prompting financial markets to reduce expectations for a near-term rate hike. The unemployment rate dropped to 4.2% last month from 4.3% in May as workers left the labour force, pushing the participation rate to the lowest level in ⁠more than five years.

“The figures challenged the narrative that the Fed remains on track to hike in the second half of this year,” Reuters quoted Westpac analysts as saying in a research report. The tepid jobs data doused traders’ expectations of an imminent rate hike and raised the odds that the Fed will keep rates on hold until October.

Traders are now pricing in a 46.8% probability that the U.S. central bank will keep rates steady at its meeting on September 15 to 16, compared to a 35.8% chance a day earlier, according to the CME Group’s FedWatch tool.

2) Rupee opens higher

Rupee rose 18 paise to 95.17 against US dollar in early trade. This came on the back of a weaker US dollar after the tepid jobs report. The dollar index, which measures the greenback against a basket of currencies, was 0.2% lower at 100.77 after a 0.5% decline on Thursday. It is on course for its biggest weekly drop since early April.

3) FII outflows taper off

Foreign investors remained net sellers of Indian equities, net selling shares worth nearly Rs 312 crore on Thursday, according to provisional data on NSE. This is marginal when compared to the massive FII outflows seen earlier this year during the raging war in the Middle East.

4) Heavy buying in IT stocks

The overall market optimism was boosted by strong buying in heavyweight IT stocks like HCL Tech, TCS and Infosys. The IT stocks are extending sharp gains today, after tumbling to fresh 52-week lows earlier this week.

IT companies derive a significant portion of their revenue from the North American market. Rate hikes or a spike in inflation in the US can weigh on discretionary spending, which, in turn, may affect the sector’s growth prospects. Hence, lower expectations of Fed’s rate hikes along with low valuations are boosting the IT stocks.

5) Positive global cues

Dalal Street is accompanying global peers in sharp gains today. South Korea’s Kospi jumped 2.5%, while Japan’s Nikkei gained around 1% on Friday morning. Hong Kong’s Hang Seng and China’s Shanghai Composite also rose nearly 1% each.

On the Wall Street, the Dow Jones Industrial Average rose more than 1% to post a record closing high on Thursday and a fourth straight week of gains. European markets also closed in the deep green yesterday.

6) Iran US peace efforts

“No news is good news” is what can summarise today’s market scenario. The peace efforts in the Middle East are holding well so far, and no escalation has been reported yet. This comes after Iran and US held peace talks in Doha earlier this week.

Iran is now preparing for the days-long funeral for the late Supreme Leader Ayatollah Ali Khamenei, whose death early in March had sparked the raging war. US President Donald Trump meanwhile has claimed that Iran has conceded to nearly all American conditions in the ongoing diplomatic negotiations while emphasising that the primary objective of the discussions remains preventing Tehran from obtaining nuclear weapons.

7) Oil prices

Oil prices inched up slightly to $72 per barrel, but continue to hover near the pre-war levels as the peace efforts continue to hold well so far. Kuwait’s oil production rose sharply to 1.65 million barrels per day in June from 580,000 ⁠bpd in May, Reuters reported citing sources on Thursday, as the OPEC member boosted exports following the US-Iran interim peace agreement.

Also, at least five supertankers carrying around 10 million barrels of Saudi oil have exited the Strait of Hormuz, with Saudi Aramco switching to spot pricing to speed sales in Asia, Reuters further reported.

What lies ahead?

India’s outperformance continues aided partly by the weakness in KOSPI and the general weakness in the chip trade, said VK Vijayakumar, Chief Investment Strategist at Geojit Investments. He added that the continuing tapering of the FII outflows is another significant factor supporting the market. But the rally will not sustain unless it is supported by fundamental factors.

“The crash in crude to pre-war level is the strongest macro support to the economy and the market. Purely from the market perspective, a strong fundamental support is the gaining strength of the banking stocks. Latest news regarding the FCNR (B) scheme is that it is receiving good response, particularly from West Asia where HNIs are eager to get good and safe returns in the context of the uncertainty caused by the war,” according to the analyst.

Leading banks are offering attractive leverage on deposits and mobilising big money, Vijayalkumar said, who noted that there are reports that this scheme may succeed in mobilising up to $60 billion. Since there is impressive credit growth in the economy, these FCNR (B) deposits will come in handy for the deposit-starved leading banks to significantly scale up their lending. “In brief, banking stocks have the fundamental strength to sustain the rally in Bank Nifty. The IT stocks are witnessing an uptrend triggered by low valuations. But the sector has no fundamental strength to sustain the rally,” he added.

Technical view on Nifty

The near-term outlook remains cautiously optimistic, according to Rajesh Palviya, Head of Research at Axis Direct. “Sustained strength above the 24,000 mark keeps the broader trend positive, with immediate resistance seen at 24,300, followed by 24,450. On the downside, 24,050 remains a key support, while a breach could trigger a corrective move towards 23,900,” he said.

Investors, however, should remain watchful of the ongoing global technology selloff, as renewed weakness in semiconductor stocks could prompt profit booking after the recent sharp rally in domestic IT names, he added.

(With inputs from agencies)
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)