Markets greet new year with euphoric rally; Sensex rises 929 points

India’s benchmark indices made a solid start to the new year on strong global cues and hopes that the rising cases of Covid-19 would not lead to total lockdowns. The goods and services tax (GST) collection and manufacturing purchasing managers’ index (PMI) numbers also cheered investors. 

The Sensex rose 929 points, or 1.6 per cent, to end the session at 59,183 on Monday, posting the best day-one gains in a calendar year since 2009 in percentage terms. The Nifty, on the other hand, surged 271 points to close at 17,625. Foreign portfolio investors were net buyers to the tune of Rs 902.6 crore, according to provisional data from the exchanges.

Though the PMI for manufacturing fell to 55.5 in December from 57.6 in November, it was well above the 50 mark, which separates growth from contraction. Also, GST collection stood at Rs 1.29 trillion last month, a rise of 13 per cent from the same period the previous year. December was the sixth consecutive month when GST collection stayed above Rs 1 trillion. 

The macroeconomic data helped investors overlook the impact of the rising Covid cases and new restrictions imposed by many states. Analysts said both indicators suggested that the economy was recovering. The government’s efforts to support growth through sufficient liquidity and low-interest rates are paying dividends. Analysts further said capex revival in India would begin soon.

Strong global cues further buoyed the markets. European markets rose as investors placed bets on hopes that the onslaught of Omicron would not affect economic activities the way the first and second waves of Covid-19 had done.

“If one looks around the world, though (Covid) cases are rising, there is no threat of harsh lockdowns. It seems no one is going to lockdown. And there is a bit of optimism during the new year,” said Andrew Holland, CEO of Avendus Capital Alternate Strategies.

From now on, analysts said, the market trajectory would depend upon how the Omicron spread pans out. However, studies indicating that Omicron is less lethal and may not lead to mass hospitalisations are keeping investors hopeful. A gradual withdrawal of monetary policy support and interest rate hikes are other major factors that investors are keenly tracking. Central banks, including the US Federal Reserve, have prioritised fighting inflation, after terming it as transitory for months. 

Mounting geopolitical tensions between Russia and the West could lead to some volatility, said analysts. A White House statement said the US President reassured his Ukrainian counterpart that Washington would respond decisively if Russia invaded Ukraine.

“Seasonally, this is a strong period for the markets. A Santa Claus rally starts at the end of December and extends to the early part of January. The thought process remains that despite Covid issues, economy is doing well. Moreover, we saw the second wave not lasting very long. All indications are that Omicron is not very lethal. So the markets are a little complacent about the pandemic today. Valuations are still expensive. The markets are not going to be anything like last year. Things will be range-bound to mildly down over the next few months,” said Jyotivardhan Jaipuria, founder, Valentis Advisors.

The market breadth was strong, with 2,672 stocks advancing and 894 declining on the BSE. The BSE market capitalisation rose by Rs 3.5 trillion. Barring four, all Sensex stocks rose. HDFC Bank rose 2.7 per cent and contributed most to the Sensex’s rise.