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Sensex gains 582 points, Nifty closes above 11,750: Key factors that drove the rally

BusinessToday.In     October 29, 2019

Sensex and Nifty traded mostly on a bullish note today after an extended three-day weekend, with the benchmark indices ending over 1% higher each on broad-based buying by market participants, amid strong global equities. Sensex closed 581.64 points higher at 39,831.84 and Nifty gained 159.70 points to 11,786. While Sensex made an intraday high of 39,917, Nifty crossed 11,800 level for the first time since July 5 to touch 11,809.40 mark intraday.

Of 30 Sensex stocks, 26 ended in the green. On Nifty, 39 of 50 stocks ended the day in positive note. Advance decline ratio stands at 1.37 and 1.43 for BSE and NSE, respectively, indicating positive momentum on both bourses.

On the sectoral front, except media, all other indices ended in the green, with over 4% rise recorded in auto and metal stocks, followed by 1% hike in IT, energy, CPSE, commodities, PSU banks and pharma scrips.

1. Strong earnings

September quarter earnings by benchmark heavyweights like SBI, ICICI Bank, RIL, Tata Motors have lifted market sentiments that were tepid amid the ongoing geopolitical tensions. "A strong momentum is seen in the market as healthy Q2 earnings from big corporate and attractive valuation for mid & small caps are providing a favourable risk-reward to investors", said Vinod Nair, Head of Research, Geojit Financial Services Ltd.

The reduction in the corporate tax rate has started showing its impact on the profitability of India Inc.  It has definitely resulted in pocketing in strong margin improvement for the companies this quarter.  Second quarter results have shown tax credits received by many large companies like Axis Bank, ITC, HDFC Bank and Hero MotoCorp, who have already shifted to the lower corporate tax regime of 22%.

The slew of bold measures taken by the FM recently has boosted stock prices and investor sentiment during the festival season. This has also resulted in foreign investor inflows, finally turning bullish that halted the continued bearish trend over months.

2 Auto stocks rise post Diwali

Amid the positive rally today, most gains were registered in auto indices. While BSE Auto index closed 4.25% higher today, NSE Nifty Auto index ended the day's trade 4.29% higher, with Tata Motors leading the upward rally post better-than-expected quarterly results.

The auto industry, the worst hit by the ongoing slowdown, has successfully reversed the 11-month decline in sales during Navratri to Dhanteras period. 

"The recently concluded festive season has resulted in a turnaround in sentiment with the Auto sector especially, which was quite stressed, has witnessed improved sales driven by a competitive pricing strategy adopted by many players,"   Sandeep Nayak, ED & CEO of Centrum Broking

Leading car makers, Maruti Suzuki and Hyundai saw sales spike 7 per cent and 10 per cent, respectively, compared to the same period last year.  New entrants Kia and MG Motors also delivered about 3,000 vehicles between them on Dhanteras.

Meanwhile, Mahindra, the third-largest player, said in a regulatory filing that the auto division delivered close to 13,500 vehicles across the country on the same day, which as "substantially higher" year-on-year.

"Auto volume numbers which will be a crucial indicator of revival in consumer spending," quoted Ajit Mishra Vice President, Research, Religare Broking Ltd. 

3 More tax cuts on cards

The Prime Minister's Office, in consultation with the Finance Ministry's Revenue Department and NITI Aayog, is reviewing the existing structure of Long Term Capital Gains (LTCG) tax, the Securities Transaction Tax (STT) and Dividend Distribution Tax (DTT), according to a CNBC Awaaz report.

"A proposed review of key taxes such as LTCG, STT and DTT before the budget have added further impetus to investor sentiment," Sandeep Nayak, ED & CEO of Centrum Broking

According to the report, comparative studies are being done to ensure long-term money from sovereign wealth funds, pension funds and insurance money flows into local equities. The report further added that DDT might be the first to see substantial rationalisation.

"This positivity is likely to stay in the short to medium term as concerns of the market are fading with the tax cut and govt's intention to come out with more reforms in direct and indirect taxation", quoted Vinod Nair, Head of Research, Geojit Financial Services Ltd

4 Rally in global equities

Amid global economy feeling pressure of the trade war, growing hopes for a US-China trade deal have optimised traders' sentiments recently.

US and Chinese officials are "close to finalising" parts of a trade agreement after high-level telephone discussions on Friday, the US Trade Representative's office and China's Commerce Ministry said.  US President Donald Trump said he hopes to sign the deal with China's President Xi Jinping next month at a summit in Chile. The trade war has hit economic growth around the world and kept global benchmark indices range-bound for long time.

Another factor that further cheered traders was the highly anticipated Federal Reserve meeting, which is widely expected to deliver another quarter-point cut to its benchmark interest rate when policymakers conclude a two-day meeting on Wednesday. Bank of Japan's rate decision would also be closely monitored by market participants.

"The clouds over the global market are gradually settling down with developments in a trade deal and Brexit, while rate cut expectation from FED will further add impetus to emerging markets like India, " quoted Vinod Nair, Head of Research, Geojit Financial Services Ltd

Investors also continue to watch developments around Britain's efforts to complete a deal dictating the terms of its exit from the European Union. The EU on Monday agreed to delay Brexit until January 31.

China-backed trade pact Association of Southeast Asian Nations (ASEAN) is also taking place this week when Southeast Asian leaders meet in Bangkok.

S&P 500 on Monday closed at an all-time high amidst better than expected results in the third quarter this year.

While  S&P 500 rose 0.56% to close at an all-time high mark of 3.039, Nasdaq Composite galloped 1.01% to settle at 8,3246. Similarly, Dow Jones Industrial Average, the blue-chip index closed 0.49% higher at 27,091, mere 1% short of its all-time high. Of 40% of companies in the S&P 500 that reported third-quarter results, almost 80% topped market estimates, which is above the five-year average recorded yet, said HDFC  securities on its Weekly Viewpoint report.

By Rupa Burman Roy

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