5 factors that have helped Sensex, Nifty recover all Budget Day losses

After a sharp fall in the week gone by and consolidation in the previous session, the benchmark indices rebounded sharply on February 4, with the Sensex rising more than 900 points and the Nifty climbing near 12,000 levels.

The frontline indices had fallen more than 4.5 percent in the previous week, including a fall of 2.5 percent on the Budget Day as the proposals failed to meet high expectations. Broader markets, too, lost 3-4 percent.

The market has recouped all of these losses since February 3. The BSER Sensex climbed 917.07 points or 2.30 percent to 40,789.38 and the Nifty50 rallied 271.80 points or 2.32 percent to 11,979.70.

The broader markets also traded higher, with the Nifty Midcap index rising 1.1 percent and Smallcap gaining 1.9 percent amid strong breadth.

More than two shares advanced for every share falling on the NSE.

Four factors that drove the market higher:

Global recovery

The recovery in Asian counterparts after a sharp fall in the previous session due to worries over global growth amid coronavirus outbreak that has killed more than more than 400 people and infected 20,000 in China. Two people have died outside China, with the viral infection spreading to 23 countries.

After more than a 7 percent fall in previous session, China's Shanghai Composite gained 1.3 percent amid short covering. Japan's Nikkei, Hong Kong's Hang Seng and South Korea's Kospi were up 0.5-1.8 percent.

European markets - France's CAC, Germany's DAX and Britain's FTSE climbed over a percent each at 15:45 hours IST.

Dow Jones futures' rally of 300 points also pointed to a positive opening in the US later in the day.

Not a big bang Budget, but no negativity also

The Budget failed to meet high expectations but there was no major negative news either. It was made with a focus on country's long-term story instead of short-term tweaks, was the general consensus on Street.

Hence, there was a short covering in most of beaten down quality stocks.

The budget did not mention long-term capital gains (LTCG) tax, which was largely expected but it did introduce new personal income tax regime, scrapped dividend distribution tax and increased FII investment limit in corporate bonds. The fiscal deficit was revised to 3.8 percent from 3.3 percent as was expected, divestment target of over Rs 2 lakh crore with the intention of cutting stake in LIC via IPO and entire stake sale in IDBI Bank and an increase in custom duties for several products with the focus on Make in India were among the other features.

"The market realised that there was no negative in the market, barring LTCG, which was not mentioned but that was fine. With crude falling sharply, stable rupee against the US dollar, lower bond yields despite coronavirus crisis, India is the good destination for long term FII flow, especially after an increase investment limit for FPIs in corporate bonds from 9 percent to 15 percent," Sanjiv Bhasin, Executive Vice President-Markets & Corporate Affairs at IIFL, told Moneycontrol.

Hence, there was a buying of fear as earnings and macros are on the mend and there are expectations of more pleasant announcements from the government, he said.

Buying across sectors and decline in VIX

All sectoral indices closed in the green with Bank, Metal, Oil & Gas, FMCG, Healthcare, IT, Auto, Realty and Power rallying 1-3 percent.

Major Nifty gainers were Titan Company, ITC, HDFC, Bajaj Finance, Tata Steel, Power Grid, Hero MotoCorp, M&M, HDFC Bank, ICICI Bank, Reliance Industries and SBI, which rallied 3-7.5 percent.

The volatility also cooled off further as the Budget is behind us. India VIX fell over 9 percent to 14.3. It closed at 17.36 on January 31, the Budget eve.

Stable oil prices

Oil prices have fallen sharply amid fears of lower demand after several countries cancelled all flights to China due to coronavirus.

Brent crude futures rebounded to $55 a barrel during the day, as favourable development for a country like India that imports 85 percent of oil requirement.

Technical View

The rally seen from the word go helped the benchmark Nifty form large bullish candle on daily charts.

The index has strongly defended its 200-day exponential moving average, placed at 11,663, and gained strength to cross even its near resistance of 11,900.

In order to establish strength bulls initially need to register a close above 11,987 levels. In such a scenario this rally can be expected to extend into the zone of 12,087–12,117 kinds of levels. If this rally is real and bottom is in place around recent low of 11,614 levels then on downsides Nifty need to sustain above Tuesday's bullish gap zone of 11,783–11,749 levels," Mazhar Mohammad, Chief Strategist – Technical Research & Trading Advisory, Chartviewindia.in told Moneycontrol.