Markets rally on stimulus package plans to tackle Covid-19 impact 

The Sensex gained over 1,861 points (+6.98%) and the Nifty 50 added over 496 points (+6.37%) over Tuesday’s close as both the benchmark indices recorded a second consecutive day of positive close after the bloodbath on Monday, when both the indices closed nearly 13% lower.

On Wednesday morning, on the first day of the three week long lock-down announced by the Prime Minister in his address to nation the night before, the S&P BSE Sensex and NSE Nifty 50 surged over 2,116 points (+7.93%) and 575 points (+7.38%) to touch their day’s high at 28,790.19 points and 8,376.75 points respectively.

According to Deepak Jasani, head of retail research at HDFC Securities, Indian markets rallied sharply on Wednesday after a shaky morning session. While this was the second session of gains, the upward acceleration happened once the Nifty crossed the previous day’s highs.

“Asian and European markets surged after the US Senate and the White House reached an agreement over a $2-trillion stimulus package to shore up the US economy against the Coronavirus [pandemic],” says Jasani.

On Tuesday, March 24, the US markets were cheering the bulls with the Dow Jones Industrial average index (Dow Jones) surging 1,940 points (+10.44%) over Monday’s close leading to a 20 minutes of trading halt.

And, at the close of trade in the US, optimism among investors on a strong fiscal stimulus there, saw the Dow Jones soaring nearly 2,113 points (+11.37%) at close. For US investors, Dow Jones’ March 24 performance broke an 80-year old record when the index had last seen a near 12% a single day jump on June 22, 1931.

“While there is a lot of momentum in the risk-on rally, volatility remains on overdrive and 2-3 consecutive days of gains are still awaited across the globe even as news on virus front does not moderate in terms of its worst outcomes,” Jasani opines. “Dire economic numbers expected over the next few days, though partly discounted can impact sentiments.”

Vinod Nair, head of research at Geojit Financial Services, is of the opinion that global markets have been trading in the green, driven by expectations of stimulus measures to support the respective economies and not because of any change in ground realities. “A much more stable rally can happen only after any news regarding the virus containment comes in,” says Nair.

In India markets are also factoring in a strong stimulus package from the Narendra Modi government in order to overcome the body blow that coronavirus has given to the economy which was already moderating in recent quarters. And that was also factored in the markets’ positive close on Wednesday.

Sahaj Agrawal, head of research, derivatives at Kotak Securities, expects the downward pressure to seize and some consolidation to happen in the next few weeks. “On the larger time scale, we believe test of sub-8000 levels (for Nifty 50) could indicate possibility of completion of a larger timeframe correction,” says Agrawal, who also expects range-bound high volatility in benchmark indices.

“Long term investors can consider averaging gradually while fresh investors can consider an aggressive equity allocation stance at current levels,” Agrawal advises. “We expect the markets to spend some time at current levels before taking further course.”

And, HDFC Securities’ Jasani is of the view that while the Nifty 50 has bounced back, the short term trend remains down. “And, the Nifty 50 could resume its downtrend if the immediate support of 8,174-7,966 is broken,” Jasani opines. “Any further pullback rallies could find resistances at 8,377-8,576 (points).”

Meanwhile, the Reliance Industries (RIL) counter was buzzing louder on Wednesday, as at the closing price of ₹1,081.25, the stock surged over ₹205 per share (+23.47%) compared to its 52-week low price of ₹875.7 registered on Monday, March 23. At the day’s high of ₹1,152 a share, the stock had surged over ₹ 276 a share (+31.55%) over its 52-week low price.

The surge was mainly attributed on unconfirmed reports that social media giant Facebook Inc. was in talks with the company to pick 10% stake in Reliance Jio – RIL’s telecom business. Given the buzz of a strategic stake sale, investors were reminded of RIL’s annual general meeting (AGM) on August 19 last year, where chairman Mukesh Ambani mentioned of having received strong interest from strategic and financial investors in RIL’s consumer businesses, Jio and Reliance Retail.

“We will induct leading global partners in these businesses in the next few quarters, and move towards listing of both these companies within the next five years,” Ambani had told investors at the AGM. The buzz was enough to bring a 10% circuit, as well a positive close of 14.65% on Wednesday, as the stock closed higher by ₹138.15 a share at ₹1,081.25 compared to ₹943.1 a share on Tuesday.