After a volatile week when the Nifty shed ~2.5 percent, Indian stock markets staged a strong comeback on Monday, a day after Christmas. Santa seemed to have finally brought some cheer to investors as the markets recovered most of the losses notched up last Friday and snapped their four-day losing streak.
At the close of trading, the 30-share BSE Sensex was up 721 points, or 1.2 percent, at 60,566 while the National Stock Exchange’s broader benchmark, the Nifty, gained 208 points or 1.17 percent to close above 18K at 18,015.
Last week’s onslaught of negative news on the potential spread of Covid, growth in the US economy, a longer-than-anticipated rate hike cycle and a global recession finally gave way to some positivity which raised investor confidence and brought cheer.
Following are the factors behind today’s bounceback:
Russia ready to negotiate on Ukraine
The war in Eastern Europe has been one of the core reasons, apart from Covid, that has impacted the global economy and equity markets adversely. The crisis is finally seeing light at the end of the tunnel. Russian President Vladimir Putin has shown his willingness to negotiate on Ukraine, raising hopes of an end to the war between two countries that are rich in oil, gas, minerals and commodities. An end to the war will ensure stability in the prices of these resources. It was a big positive for the markets today.
Lower-than-expected rise in US inflation
US inflation measured by consumer prices rose at a lower-than-expected pace. Consumer prices increased by just 0.1 percent last month, which was less than the 0.2 percent increase expected by economists. Inflation in the world’s largest economy has been showing signs of tapering lately. This shows that the steps taken by the US Federal Reserve in containing the speed of increase in inflation are finally producing results. This can prompt the Fed to slightly soften its aggressive stance of monetary tightening, which in turn will ease pressure on equity markets.
Bank of Japan to continue the easy policy
The Bank of Japan (BoJ) enthused equity markets by indicating that it will continue on the path of an easy monetary policy for some time to come. BoJ Governor Haruhiko Kuroda on Monday brushed aside the chances of a near-term exit from ultra-loose monetary policy. The Governor, while commenting on BoJ's decision last week to widen the allowance band around its yield target, said the decision was aimed at enhancing the effectiveness of its ultra-easy monetary policy and was not a step toward withdrawing its massive stimulus programme.
Value buying
After a sharp fall of 3 percent in the last three trading sessions, value buying was seen at lower levels and all sectors ended in the green except Pharma, which bucked the overall positive trend and ended in the red.
Broader markets came into action today after three consecutive weeks of decline and pipped the Nifty in terms of performance. The Nifty Midcap 100 gained 2.7 percent while Nifty Smallcap 100 rose 3.8 percent. The advance-decline ratio jumped to 5.43:1.
“In the absence of any major global events due to year-end holidays, we expect the market to remain sideways to positive based on news flows,” said Siddhartha Khemka, Head of Retail Research at Motilal Oswal Financial Services.
Defensive stocks underperformed today while cyclicals staged a smart bounceback.