Markets log best 1-day gains in over 3 months as global markets stabilise

All Sensex, Nifty stocks close in the green; FPIs pump in Rs 4,166 cr

India’s benchmark indices rebounded sharply on Tuesday as stability returned to global markets after a brutal sell-off triggered by US Federal Reserve Chairman Jerome Powell’s hawkish comments last week. Strong inflows from foreign portfolio investors (FPIs) on optimism about India’s growth prospects saw the domestic markets extend their outperformance over global peers.

The Sensex surged 1,564 points, or 2.7 per cent, to settle at 59,537 on Tuesday, while the Nifty gained 446 points, or 2.6 per cent, to finish at 17,759. This was the biggest single-day gain for both the indices in more than three months, and among the top three gains this year. During the preceding trading session, the two indices had declined about 1.5 per cent each.
 

The sharp upmove surprised many on the Street as the Fed’s quantitative tightening programme and strong commitment to rein in inflation was expected to take zing off equities.

FPIs pumped in Rs 4,166 crore on Tuesday to cap the best month of 2022 in terms of overseas flows.

All the 30 Sensex and 50 Nifty components closed in the green. Experts said short-covering and strong buying interest in banking and financial stocks aided the rally. The Bank Nifty index rose 3.3 per cent and the Nifty Financial Services index rallied 3.4 per cent.

The Nifty has risen about a per cent on a year-to-date basis even as the MSCI Emerging Market index has declined over 18 per cent.

“India stands out as an island of growth when there is a clear recession in the rest of the world. Economic growth is a given, the only debate is how much will the Indian economy grow this year,” said U R Bhat, co-founder, Alphaniti Fintech. “Economic activity has rebounded well, and we are still on adequate foreign reserves. Even if there is a recession elsewhere, we can hold on for a while. Moreover, the selling in global equities after Friday was a bit overdone. The Fed chairman's remarks belied expectations, which were built on sound fundamentals.” 

While most Asian markets closed in the green, US stocks sank after two days of losses. The S&P 500 and the tech-heavy Nasdaq 100 dropped as much as 1.5 per cent and 1.8 per cent, respectively, in early trade.

Most global markets had bounced back from this year’s lows in June on optimism that the worst of inflation was behind us and the Fed would be less aggressive on raising interest rates. However, that notion was challenged on Friday by Powell’s comments at the Jackson Hole symposium, that rates could remain elevated for longer.

The fall in crude oil prices has raised hopes that inflation may gradually moderate over time. India is a net importer of crude oil, and a rise in crude prices tends to be inflationary.

The India VIX index retreated 6 per cent on Tuesday after soaring 9 per cent a day earlier. Experts say the markets could continue to see wild swings going ahead as the Fed ramps up its balance sheet unwinding this week. China's economic slowdown and the looming energy crisis in Europe as the Russia-Ukraine war rages on are other headwinds facing the equity market.

The market breadth was strong, with 2,397 stocks advancing and 1,028 declining. The Indian markets will resume trading on Thursday and shift focus towards incoming macroeconomic data to gauge the health of the economy and central bank action in future.