Sensex and Nifty extend relief rally, jump over 2% amid bargain buying

Indian equities extended their relief rally to the second day on Wednesday as investors felt that the economic impact of the Russia-Ukraine war had been priced in and looked for bargain buying with several stocks available at multi-month lows.

The Sensex rose 1,223 points, or 2.3 per cent, to end the session at 54,647, while the Nifty closed at 16,345, gaining 332 points, or 2.07 per cent. On Monday, both the indices had dropped to their lowest levels in more than seven months as Brent crude hit a 14-year high of nearly $140 a barrel and prices of other commodities also spiralled.

“A bit of buying dips lifted markets globally. Markets were okay probably because they had already priced in the US ban on Russian oil exports. The US demand is a small percentage for Russians. Oil prices might stabilise as Europe may not join the chorus regarding banning oil from Russia because of its greater dependency,” said Andrew Holland, CEO, Avendus Capital Alternate Strategies.

European markets posted strong gains, which bolstered sentiment across the globe, even as Russian forces bombarded Ukrainian cities. Reports suggest that the bounce in European markets was on hopes of a relief package by policymakers to safeguard the region’s economies from the fallout of the war between Russia and Ukraine.

Many fear that the high commodity prices would lead to further pressure on inflation and boost prospects of stagflation. Many economists are now forecasting higher inflation while cutting economic growth estimates.

It will be clear in the coming days how central banks plan to address this problem. The European Central Bank is likely to announce its rate decision on Thursday. The US Federal Reserve and the Bank of England will announce their rate decisions next week. The Fed is expected to raise rates by 25 basis points.

Investors will keenly track the state election results, especially that of the politically critical Uttar Pradesh, on Thursday. However, analysts have said the effect of election results will be short-lived as macroeconomic risks loom large.

Analysts said markets had become news-driven of late and were swinging between the hope of fiscal support and despondency over the rise in commodity prices. Many advised investors to assess whether stocks of the companies they are buying can withstand these external shocks.

“The recent rebound is in line with the global counterparts, and it would be too early to call it a reversal. Besides geopolitical updates, domestic factors such as state election results will also be in focus. We expect volatility to remain high, so participants should prefer hedged trades,” said Ajit Mishra, VP- research, Religare Broking.

The market breadth was strong, with three stocks advancing against one declining on the BSE. About 70 stocks hit their 52-week highs, while 20 hit their 52-week lows. Four-fifths of the Sensex stocks gained.

Reliance Industries gained 5.2 per cent and made a 358-point contribution to the Sensex gains. All but three sectoral indices gained on the BSE. Energy stocks gained the most, and its sectoral index rose 3.6 per cent. The metal index fell the most at 0.7 per cent.