Bears take a break

Equity markets in India began their week taking positive cues from their global peers. On Tuesday, the S&P BSE Sensex and National Stock Exchange’s Nifty 50 jumped over 2,566 points (+9.3%) and 735 points (+9.1%), to touch the day’s high of 30,157.65 and 8,819.4 points, respectively.

Though the S&P BSE MidCap and SmallCap gained 5.54% and 4.27%, respectively, at their day’s high, good news is that at Tuesday’s lows, all the four indices were trading in the green with gains ranging between 2.05% and 3.67%.

At close, the Sensex and Nifty 50 added 2,476 points (+8.97%) and 702 points (+8.69%), respectively, to Friday’s close, their biggest single-day gain since May 2009. The mid-cap and small-cap indices closed over 552 points (+5.4%) and 388 points (+4.13%) higher. The markets were closed on Monday on account of Mahavir Jayanti.

Deepak Jasani, head of retail research at HDFC Securities, highlighted that Tuesday saw the benchmark indices staging their biggest one-day gain since May 2009. “The global stock markets on Tuesday followed up on Wall Street’s Monday rally amid continued signs that the Coronavirus outbreak may be peaking in a number of hard-hit places,” said Jasani.

He also highlighted that the European markets traded sharply higher on Tuesday, as investors hoped that the Coronavirus outbreak in the region may have reached a plateau. “In India, volumes on the NSE flared up, as traders rushed to cover shorts and/or square up their option positions, resulting in IV (implied volatility) eroding,” Jasani said. “Defensive and old economy stocks were both in demand.”

Abhimanyu Sofat, head of research at IIFL Securities, said that the rally in the market was driven by positive news with regard to New York and Spanish data on the rate of Coronavirus infections. “The flattening of the curve would help a risk-on trade in the market,” he said. “However, for the Nifty to go above 9,000, one would need some additional positive news on the domestic front with regards to Coronavirus.”

According to Ajit Mishra, vice president–research at Religare Broking, the bears loosened their grip on the Indian markets on Tuesday, tracking the buoyant global cues as there are signs of Covid-19 plateauing in certain parts of the globe. “Currently, the markets are largely being driven by developments with regards to Coronavirus across the globe,” said Mishra, who expects the markets in the next few sessions to remain volatile. “A sustainable recovery would happen only when the [Covid-19] cases start to recede in the country and the lockdown is eased gradually,” he said.

While Covid-19 continues to be the central theme on investors’ minds, S. Ranganathan, head of research at LKP Securities, said Tuesday saw the bulls taking the bears to task with a salute (gain) of more than 700 points on the Nifty 50. “MSCI (Morgan Stanley Capital International) changes, under-ownership in pharmaceuticals, and support from financials culminated the stellar day in favour of the bulls,” he said.

Amar Ambani, senior president and head of research at YES Securities, had a slightly different take on Tuesday’s rally, which was on a smaller base in comparison to where the markets were around three months ago. “A rally on the Nifty 50 to 10,500 is possible in the next four weeks, where it will still face resistance,” said Ambani, who foresees the year 2020 to continue to exhibit high volatility even in the aftermath of the Covid-19 crisis. “It will be a great time to lap up stocks with a three-year horizon, but only after sufficient liquidity is kept aside for emergencies,” he advised.

Meanwhile, HDFC Securities’ Jasani said that technically the Nifty 50 had rebounded well after forming a higher bottom at 8,056. On up moves, it could face resistance at 9,039, while 8,678 could offer support for the near term. “Indian markets could join South Korea, The Philippines, and Indonesia in rising more than 20% from the recent bottom when the Nifty 50 touches 9,013,” he said.

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