Indices near over one-week high, Sensex up 1,564 pts | Key factors behind today's rally

The market on August 30 reversed almost all its losses that were witnessed since the beginning of last week, by making a big upmove in one single day - the last trading session of the month. This, as per experts, can also be a relief rally led by short covering as well as value buying after the recent fall as they still believe India is going to be an outperformer in the coming years.

"India is doing better than the rest of the global economy for reasons such as a focus on reforms, improved direct tax collection, higher investment in the rural economy, and ensuring that social benefits accrue to those who need it," A Balasubramanian, CEO, Aditya Birla Sun Life Mutual Fund said.

The gap up opening was not huge but the gradual upmove took the market to near the high of last week, despite FII outflows in the last couple of days. and rising oil prices. The Nifty50 surged more than 440 points to 17,759, and the BSE Sensex climbed 1,564 points to 59,537.

The broader markets also traded in line with benchmarks as the Nifty Midcap 100 index gained 2 percent and Smallcap 100 index rose 1.3 percent.

Here are the five factors that are driving the market higher today -

All Sectoral Indices Rally

Every sector participated in Tuesday's upmove. The Nifty Realty index emerged as the biggest gainer with 3.5 percent rally. Bank and Financial Services gained more than 3 percent each, while the IT and Auto indices were up 2.6 percent each and FMCG rose 2 percent.

Expectations of strong Q1 GDP Data

The expectations of strong double-digit growth in GDP for the June FY23 quarter with the opening of full economic activity and strong domestic demand could be supporting factors for the rally.

Barclays' forecast says India's economic growth accelerated to 16 percent YoY in Q1FY23.

"The robust sequential recovery in place since Q2 2021, when COVID-19’s Delta variant forced widespread lockdowns, likely hit another high in Q1FY23. The economy was fully opened, with all activity restrictions removed. While some supply headwinds were evident in the form of lingering intermediate-good shortages and higher input costs, we expect both the domestic goods and services sectors to show impressive recoveries in Q1FY23," Rahul Bajoria, MD & Chief India Economist, Barclays said.

Auto Stocks in Fast Lane

Auto stocks witnessed good buying ahead of their monthly sales numbers that will be announced in the later part of this week. Most segments, barring tractor, are likely to deliver good numbers for August, experts said.

Tube Investment of India, Ashok Leyland, Tata Motors, TVS Motor, Maruti Suzuki, Mahindra & Mahindra, Bharat Forge, Eicher Motors, Bosch, and Balkrishna Industries rose 2-5 percent.

Japanese brokerage firm Nomura expects 29 percent year-on-year growth in the passenger vehicle segment, a 48 percent increase in commercial vehicle space, and 7 percent in the two-wheeler segment in August 2022.

"Demand trends remain healthy in medium heavy commercial vehicles (MHCV) and passenger vehicles (PV) in August 2022. PV wholesales continue to benefit from improving chip supplies. Inventory correction in high-volume chip segments like PCs and smartphones is freeing up manufacturing capacities. This should result in a step-up in production of chips in segments where supply is still tight, like automotive and industrial, leading to normal supplies in a few months," the brokerage said, adding the dealer inventory is rising, and order books will be tested.

Dealer checks indicate demand has slowed in the entry car segments while new launches and SUVs still have high waiting periods, the brokerage said while maintaining 21 percent and 6 percent passenger vehicle industry growth in FY23 and FY24, respectively.

Europe in Positive Mood

The rebound in European markets also aided Tuesday's rally. Germany's DAX was up 1.9 percent, France's CAC rose 1 percent, and Britain's FTSE gained 0.3 percent at the time of writing this article. In previous sessions, Fed Chair Jerome Powell's comments about continuity in interest rate hikes to tame inflation at the cost of pain to consumers and businesses had pulled global markets down.

In Asia, Japan's Nikkei and South Korea's Kospi closed with more than one percent gains, whereas China's Shanghai Composite and Hong Kong's Hang Seng were down four-tenth of a percent.

Technical View and VIX

Technically, the Nifty50, after a gap-up opening, extended its rally further and formed a large bullish candle, indicating bulls are in a strong position. The index also strongly respected the previous day's low of 17,166, which is another positive factor. Hence, if the index manages to take out 18,000 with the current uptrend, then 18,114 and 18,350 can be the next resistance points for the index, experts said.

The volatility also cooled down by nearly 6 percent to around 18.7 levels, making the bulls more comfortable at Dalal Street. If the India VIX falls below the 18 mark, then there could be further stability in the market, experts said.