Sensex surges 1,600 points: What drove the rally on D-Street?

NEW DELHI: After four days of bloodshed on Dalal Street, the stock market bears took a breather allowing domestic indices to witness a relief rally even as coronavirus cases continued to mount in India.

Talks of major relief measures and favourable technical setup helped the sentiments on the Street. Gains in Asian and US markets also supported the bulls. However, analysts are sceptical regarding the sustainability of the rally.

BSE bluechip index Sensex soared 1,627 points to 29,915 while its NSE counterpart Nifty jumped 482 points to 8,745.

Investor wealth jumped Rs 6.32 lakh crore in today's market rally.

Here are the factors that are aiding the markets:

Dead cat bounce
Intermittent rallies in a bear market are not new and analysts termed today’s jump as dead cat bounce --a temporary recovery in share prices after a substantial fall caused by speculators buying in order to cover their positions.

“As long as we do not see any light at the end of the tunnel you are likely to see continued volatility which means more up days and more down days,” said Hugh Albert Johnson, CIO, Partner and Chairman of Hugh Johnson Advisors. The market veteran added that such a bounce in the market cannot be trusted.

More relief coming
Economies across the world are planning relief measures for affected businesses and public that aided the market sentiment on Street. The US Senate was debating a $1 trillion-plus package that would include direct financial help for Americans, relief for small businesses and steps to stabilise the economy. India is also considering such a step.

Sources told Reuters that China was set to unleash trillions of yuan of fiscal stimulus to revive an economy facing its first contraction in four decades.

Global shares rally
Share markets across the world recorded a relief rally, boosting morale back home.

South Korean shares bounced 7.44%, though that still left them down over 10 per cent for the week. Hang Seng gained 4.63 per cent but Japanese Nikkei 225 closed down 1.04 per cent. Shanghai Composite added 1.6 per cent for the day.

E-Mini futures for the S&P 500 eased 1.2%, perhaps unsettled by news California' governor had issued a statewide "stay at home" order to residents.

Rally in crude oil
Sustained rise in crude oil prices for the last couple of sessions have fueled hopes that it may cushion the bottom lines of some of the firms involved in energy businesses.

Oil prices recovered further after US President Donald Trump hinted that he may intervene in the price war between Russia and Saudi Arabia. If that happens, it may remove uncertainty on this front.

Brent crude futures climbed 28 cents, or about 1 per cent, to $28.75 per barrel. With this, energy stocks Reliance Industries, ONGC, GAIL, IGL, HPCL and BPCL gained 4-15 per cent. BSE Oil & Gas index leaped over 6 per cent.

Technical outlook
Technical charts for Nifty had predicted a consolidation. Analysts said levels in the 7,800-8,000 zone may offer some support to the index. The NSE barometer may face resistance around its recent swing low of 8,555, they said.

“The index faces crucial resistance near the 8,550 mark. Once we see a close above this level, there could be a relief rally. Till then, it will be a ‘sell on rise’ market. Supports for the index stand in the 8,000-7,800 zone, said Rohit Singre, Senior Technical Analyst at LKP Securities.

Nifty seems to be headed for consolidation, provided it sustains above the 7,832 mark for at least next couple of days, said Mazhar Mohammad, Chief Strategist – Technical Research at Chartviewindia.in.