Markets post strong gains for a second day, key indices gain 1.3% each

The benchmark indices rose sharply for a second straight day on Thursday as optimism surrounding India's improving macroeconomic data helped offset fears of the spread of the new coronavirus variant.

The Sensex soared 776 points, or 1.3 per cent, to finish at 58,461, while the Nifty jumped 234 points to end the session at 17,401. In the past two trading sessions, the Sensex has added 1,396 points, or 2.4 per cent.

A bunch of economic indicators released on Tuesday and Wednesday showed that the economy was on the path of recovery despite grappling with Covid-19. India’s gross domestic product grew 8.4 per cent year-on-year in the September quarter. Goods and services tax (GST) collection in November stood at Rs 1.31 trillion, the second-highest monthly mop-up since its introduction in 2017. Also, manufacturing activity picked up and grew the fastest in 10 months in November.

“GDP growth in the second quarter has been quite robust. Omicron is worrying at a personal level, but businesses have figured out how to deal with it. The conclusion investors are drawing is that more than any other large economy, India has figured out how to grow despite Covid,” Saurabh Mukherjea, founder, Marcellus Investment Managers, said. “More and more promoters are talking about stepping up capex. If GST and PMI numbers sustain, then by the end of this year, we will see a broad-based sentiment emerging regarding resuming the capex cycle,” he added.

Some experts opined that the gains in the last two days were accentuated by technical factors and ‘buy the dip’ strategy deployed by retail investors. From its peak in mid-October, the Sensex was down as much as 9 per cent last week.

“The markets were looking oversold. A 5-10 per cent correction from the peaks was expected anyway. It's more of buying on dips. It's just bouncing from the bottom,” said Andrew Holland, CEO, Avendus Capital Alternate Strategies.

Worldwide, investors were seen grappling with the Omicron variant's impact. Experts said there could be higher-than-expected volatility in the coming weeks.

The new variant had rattled the markets, with several countries imposing travel restrictions, raising questions about whether the global economic recovery could sustain. On Wednesday, the World Health Organization (WHO) confirmed the presence of Omicron in 23 countries. On Thursday, two cases of the Omicron variant were detected in Karnataka.

“We expect the market to continue with its volatility given the uncertainty around the new variant and Fed tapering. However, the sharp sell-off has made valuations comfortable. The strong domestic economic data-points continue to point towards economic recovery, thus keeping long-term fundamentals intact. Hence, we would advise investors to buy in this volatility in a staggered fashion to build a long-term portfolio,” said Siddharth Khemka, head of retail research at Motilal Oswal Financial Services.

The India VIX index fell another 7 per cent on Thursday. A day earlier, it had dropped 8 per cent.

The market breadth was strong, with 2,185 stocks advancing and 1,065 declining on the BSE. As many as 437 stocks on the BSE were locked in the upper circuit, and 171 hit a 52-week high. Utilities and power stocks rose the most, and their sectoral indices rose 2.2 and 2.1 per cent, respectively. Among the Sensex stocks, HDFC rose the most and contributed the most to the index gains.