Dip in Covid cases boosts indices; Sensex up 1.74%, FIIs remain net sellers

The benchmark indices surged on Monday as investor sentiment got a boost after fresh Covid-19 cases dropped below the 300,000-mark for the first time in 27 days. The uptick in global markets on optimism over the economic recovery helped counter concerns over rising inflation.

The rally, however, surprised many as it came on a day when Citibank cut India’s gross domestic product (GDP) forecast for financial year 2021-22 (FY22), and cyclone winds caused damage in the financial capital Mumbai.

The benchmark Sensex ended the session at 49,580.7, with a gain of 848 points or 1.7 per cent, and the Nifty ended the session at 14,923, a gain of 245 points or 1.7 per cent.

The gains came even as foreign investors sold shares worth Rs 2,256 crore, while domestic investors provided buying support to the tune of Rs 1,948 crore.

On Monday, the number of fresh Covid-19 cases reported in India stood at 281,000. However, some reports pointed out that the low numbers could be the result of fewer tests being conducted on Sunday. The rising cases in the hinterland remain a worry. Also, many states, including Maharashtra, Kerala, Bihar, and Uttar Pradesh decided to extend restrictions last week.

“The drop in cases gives hope that the worst of the second wave is behind us, and the markets will start discounting that immediately. And in three weeks, the economy will start normalising, and we may not lose the entire quarter. Over the last two weeks, several corporates had clearly said that demand was going strong as the second wave hit us. And they have made it clear that if the second wave abates, they expect demand to come back strongly,” said Saurabh Mukherjea, founder and chief investment officer, Marcellus Investment Managers.

Banking stocks accounted for the bulk of the gains on Monday with the Bank Nifty index surging 4 per cent.

Vinod Nair, head of research, Geojit Financial Services, said the reduction in fresh cases helped ease concerns over extended lockdowns and sharp correction in FY22 estimates.

The weakening of the US dollar and dip in treasury yields kept global investor sentiment positive.

The renewed interest in domestic equities came after weeks of turbulence. When investors took money out of risky assets fearing inflation will force central banks to tighten easy money policy sooner than expected.

The prospect of early monsoons this year has also cheered investors.

“Rural India has benefited from two good monsoons in a row, and a third one this year will help keep the consumption engine going. We have already seen good demand in FMCG and auto sectors,” said Mukherjea.

Two hundred and ninety stocks hit their 52-week highs, and 495 were locked in the upper circuit on BSE on Monday. The market breadth was positive, with 2,099 stocks advancing against a decline of 1,051 stocks.

IndusInd Bank was the best performing stock on the Sensex and rose 7.3 per cent, SBI rose 6 per cent, ICICI Bank 4.4 per cent, and HDFC Bank 3.8 per cent.

“Banking stocks have gained as the fall in cases has helped soothe asset quality concerns,” said Nair.

Barring two, all sectoral indices on BSE rose. Banking and finance stocks rose the most, and their gauges rose 3.98 and 3.08 per cent, respectively.