Headline indices Sensex and Nifty surged 3 percent in morning trade on June 1 as investors cheered further opening up of the country’s economy after months-long lockdown.
Experts said the domestic market is witnessing strong recovery led by the global tailwind of hopes of a coronavirus vaccine in the offing and easing lockdown regulations worldwide.
Moreover, short-covering is also playing its role.
“Continuing short covering and some cash buying due to reopen optimism is keeping the market up. This can extend another 4 percent and then fundamentals will return as PMI for May is still near 30 which shows large contraction,” said Sameer Kalra, Founder, Target Investing.
Sensex surged over 1,000 points, while Nifty topped 9,850, supported by across-the-board buying.
Around 10:40 hours, the BSE Sensex was 916 points, or 2.83 percent, up at 33,340, while Nifty was 258 points, or 2.69 percent, up at 9,838.
BSE Midcap index was 1.98 percent up while the Smallcap index was 2.87 percent up at that time.
Here are the key 5 reasons that are fuelling the rally in the market:
Reopening of the economy
Easing lockdown regulations in India and parts of the world infused positive sentiment in the market.
The country, however, will remain under lockdown till June 30 but significant relaxations have been given so that economic activities can begin.
As per brokerage firm Motilal Oswal Financial Services, this is a good calibrated step toward the resumption of the economic engine.
After a highly stringent two-month lockdown, the government of India is clearly moving toward a step-by-step approach to restoring normalcy.
“Much also depends on state governments and local authorities as they have the keys for implementation. While these relaxations would help improve the supply-side situation and potentially defray fixed costs, it would also drive consumption at the margin. However, demand trends in the respective categories are the key monitorable. We expect the governments (Central and State) to progressively keep relaxing the lockdown norms further,” Motilal Oswal said.
Today is the sixty-ninth day of India’s nationwide lockdown, which has now been extended till June 30. On May 30, The Ministry of Home Affairs put out a detailed list of activities that will be allowed to resume in a phased manner over the next month. The nomenclature has changed to ‘unlock’ from ‘lockdown’.
Prime Minister Narendra Modi’s government has extended lockdown until June 30 in so-called containment zones that should remain under lockdown because they continue to report a high number of infections.
As per media reports, Indian states on Sunday began identifying high-risk zones where coronavirus lockdowns should continue while the rest of country gears up to reopen in June despite a record rise in COVID-19 cases.
Positive global cues
Arise in major global peers also influenced the mood. Global stocks logged gains amid signs of easing tension between the US and China while signs of recovery in China’s economy supported sentiment.
As per Reuters, Asian shares pushed to three-month highs on Monday as progress on opening up economies helped offset jitters over riots in US cities and unease over Washington’s power struggle with Beijing.
There was also relief that while President Donald Trump began the process of ending special US treatment for Hong Kong to punish China, he left their trade deal intact, Reuters added.
Strong rally across the board
A strong wave of across-the-board buying kept the market benchmarks aloft. Banking, financial, metal and FMCG heavyweights such as HDFC twins, Bajaj Finance, Tata Steel, JSW Steel Bajaj Finserv, ICICI Bank, Kotak Mahindra Bank and Axis Bank rose up to 7 percent, lending strong support to Nifty.
Nifty Bank and Nifty Financial Services indices surged over 4 percent each. Nifty Metal, Media, Private Bank and Realty indices, too, surged over 4 percent each.
Hope is playing ball
Experts point out that the market is factoring in negatives and rising on hopes that a vaccine or cure for the pandemic will emerge soon. There are also expectations that the government will step in with more stimulus if needed. Economies across the world have seen the governments and their agencies coming out with measures to stem the economy.
Technical factor
Nifty decisively surpassed the crucial 9,500-mark on May 29 despite negative global cues amid US-China tensions.
One interesting thing that was visible on the charts was a buy signal triggered by the MACD indicator on the daily charts.
The Moving Average Convergence/Divergence indicator or MACD is a refinement of the two moving averages systems and measures the distance between the two moving average lines.
“The bulls appear to be strengthening their grip on the markets as the Nifty50 decisively closed above its near-term hurdle of 55-day EMA (which was placed at 9,518) with a solid bullish candle on weekly charts. Moreover, daily MACD has generated a fresh buy signal post today’s price action. Hence, sustaining above 9,400 levels, the Nifty can initially head to test recent highs of 9,889 levels,” Mazhar Mohammad, Chief Strategist – Technical Research & Trading Advisory, Chartviewindia.in, said.
Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
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