Sensex rises over 2,500 points this week; 5 key factors that triggered rally

For the second time in a row, RBI maintained status quo in the face of high inflation, and left the repo rate unchanged but maintained an accommodative stance

The total market capitalisation of BSE-listed companies touched a new high of Rs 1,60,68,725.10 crore on Friday, at its highest level The total market capitalisation of BSE-listed companies touched a new high of Rs 1,60,68,725.10 crore on Friday, at its highest level

Benchmark equity indices -- Sensex and Nifty -- registered the best week in the last four months and closed bullish on Friday after the Reserve Bank of India (RBI) kept the repo rate unchanged at 4 per cent in its Monetary Policy Committee (MPC) meet outcome today. For the second time in a row, RBI maintained status quo in the face of high inflation, and left the repo rate unchanged but maintained an accommodative stance.

Extending gains for the seventh consecutive session, the 30-share benchmark BSE  Sensex ended 326 points higher at 40,509 and NSE Nifty50 gained 79 points to 11,914. During the 7 days of straight gains, Sensex has risen 2,529 points higher, while NSE Nifty has gained by 692 points from 11,222 since Sept 40, last Friday.

The total market capitalisation of BSE-listed companies touched a new high of Rs 1,60,68,725.10 crore on Friday, at its highest level. BSE's highest market cap stood at Rs 1,60,57,157.62 crore on January 17, 2020.

Let's look at five factors that influenced rally in Dalal Street this week:

RBI policy outcome

After opening muted today, the market gained after the RBI in its MPC meeting reiterated its decision to keep the repo rate unchanged, in its determination for control over inflation. RBI unleashed a slew of measures for the economy to support the economy, bond markets and corporate sector. As per the RBI Governor, India's Gross Domestic Product (GDP) is expected to contract 9.5 per cent in FY21, with risks to the downside.

The Reserve Bank of India (RBI) Governor Shaktikanta Das today projected better days for the economy that saw a contraction in the first quarter of 2020-21.  The RBI Governor said that the mood of the nation has shifted from fear and despair to confidence and hope. "Today, there is a turn in the wind, which suggests that it is not imprudent to dream of a brighter tomorrow even in the bleakest of times," said RBI Governor.

Post the RBI policy stance update, banking and financial indices surged on liquidity boosting measures. This also triggered the NBFCs and HFCs during Friday's trade. BSE Bankex rose 300 points, with ICICI Bank, Bandhan Bank, RBL Bank, City Union Bank, HDFC Bank and Axis Bank, rising up to 3% each.

Expressing views on MPC outcome, V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services, said: "Though the policy rate remains unchanged,  this is a very dovish policy announcement. Rationalization of risk weightage of home finance companies is an innovative initiative which will bring home loan rates down."

Global markets

Developments around the US elections and the possibility of additional stimulus drove investors to equity markets this week. As renewed hopes for more US stimulus helped restore investor confidence, Asian stocks closed near two-and-a-half-year highs, while Wall Street futures were up 0.4 per cent.

Global equities continued gains today after President Donald Trump said talks with Congress had restarted. This was after the US FED officials expressed worries in FOMC that a lack of further fiscal stimulus would jeopardize an economic recovery that was moving faster than expected.

Major central bankers have called for renewed government spending, to recover major economies from the coronavirus pandemic indices recession.

Anuj Gupta, DVP, Commodities and Currencies Research, Angel Broking said: "After calling off the negotiations over further stimulus aid with the democrats until the upcoming U.S. elections, Donald Trump asked Congress to infuse $25 billion in new payroll assistance to U.S. passenger airlines in order to help ten thousands of workers maintaining their jobs."

Sector-based gains

This week, investors turned buoyed over hopes of better than expected Q2 FY21 earnings and estimated recovery in corporate earnings in FY22.

IT sector stocks rose as analysts said the industry was better placed in a pandemic-induced slowdown, due to coronavirus-led work from home culture. TCS started the Q2 result season on 7 October with its September earnings, followed by Wipro, Infosys and HCL Tech who will report results figures on October 13, 14 and 16, respectively.

Similarly, the week registered buying pressure in banking stocks as investors turned buoyed with companies providing their positive quarterly updates and sales figures, ahead of the Q2 earnings results. With demand normalising to pre-COVID-19 levels on the back of relaxations in virus indices lockdown, many market analysts are expecting margins to be resilient.

Vinod Nair, Head of Research at Geojit Financial Services, said: "Market is booming to a new level in anticipation of better Q2FY21 results, a clear improvement in domestic economic data and uptick in the global market. The IT and Banking sector will be in focus, in the coming weeks, in expectation of real benefit in Q2 result. Banks are showing healthy deposits & advance growth, with signs of recovery in growth to pre-Covid level, while positive SC verdict is also expected next week regarding moratorium."

Foreign money inflow

Foreign institutional investors (FII) have turned back to capital inflows after recent selling, which has also led the direction for the Indian stock market.  FPI flows have recovered recently with central banks maintaining accommodative mode and keeping global liquidity surpluses abundant. In India, FIIs have invested Rs 5,040 crore in this month itself.

FIIs rushed to invest in India in the month of August, with inflows reaching a total of $6.3 billion, although, had turned net sellers of shares worth $73.1 billion last month.

Foreign institutional investors (FIIs) net bought shares worth Rs 1,093.81 crore in the Indian equity market on October 7, as per provisional data available on the NSE.

Technical outlook

While Sensex and Nifty have fallen 2 per cent and 1.8 per cent since January 1, 2020, both indices have gained 5.6 per cent and 6 per cent in the last one month of trade.

Expressing views on a weekly note, Axis Securities in its report said: "Sensex has marked a high around its psychological level of 40000 and witnessed profit booking around the same hence from current levels 39500-40000 levels remain a crucial resistance zone to watch for. However, any weekly close above this supply zone will encourage the bulls to continue their bullish command into the markets towards 40500-41000 levels. As the current undertone still remains bullish and any short term corrections towards 37500-36500 levels will remain as a buying opportunity for the traders. On the contrary, the crucial support zone is around 37000-36500 levels."

"Good bullish momentum build-up was seen in IT, healthcare and consumer durables stocks. Whereas sectors like metals, oil & gas & banking lagged. Sensex had a muted performance amongst the major market indices while FTSE and NIKKEI have ended on the strong note for the month of September 2020," it added.

On markets closing, Manish Hathiramani, proprietary index trader and technical analyst, Deen Dayal Investments said,"The markets maintained an upward trajectory shortly after its tepid opening. We are entering into the weekend with a strong closing where the Nifty is not very far from the 12000 price mark! 12200-12300 is a potential target which the index is capable of achieving during the course of this month. 11400 is a good support level."

"The 20 EMA on the hourly chart has not been breached in the recent upmove which is placed around 11745 and is seen as important support whereas the immediate resistances are seen around 11900 and 12000 mark," said Angel Broking in its Technical Derivatives report.

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