Markets rebound for the second day on the trot as investors 'buy the dip'

Stocks fell sharply on both, Friday and Monday after a Fed official said he sees rate hikes as early as next year. However, they recouped losses on both days.

Traders bought the dip for a second day in a row, helping markets shrug off the negative sentiment triggered by the US Federal Reserve’s hawkish stance.

Stocks had come under selling pressure after the comments of a Fed official that he expects rate hikes as early as next year. Mirroring losses in the global markets, domestic equities too fell sharply both on Friday as well as Monday. However, they recouped the losses on both days.

Experts said strong buying is emerging from retail investors and domestic institutions whenever the market is seeing a selloff.

“Honestly, I am also surprised. I cannot think of any other reason but the optimism of new investors,” said G Chokkalingam, Founder, Equinomics.

The Sensex recovered 834 points from the day’s low on Monday and on Friday after dropping more than 700 points the index managed to end the day with a 21-point gain.

On Monday, the benchmark Sensex ended the session at 52,574, gaining 230 points or 0.44 per cent. The Nifty, on the other hand, ended the session at 15,746, a gain of 63 points or 0.4 per cent.

Many analysts were pegging the market to fall after the US markets fell sharply on Friday. Markets were jittery after Fed official Jim Bullard said that the first interest rate hike by the US central bank could come as early as the end of next year. In addition, investors were distressed by the Federal Reserve’s indication of rate increases by end-2023 during its policy meeting.

Analysts said that the global economic recovery had created a healthy risk appetite for all risk asset classes. And India crawling back from the onslaught of the second wave of COVID 19 has made the appropriate condition for investor interest.

“This year looks to be the strongest in GDP growth globally after a while. Even in India, in the second unlock, it is clear that demand is reviving. Every central bank is saying that they will continue the easy money policy. Even though there are fears of the third wave, the vaccination efforts globally have made good progress. And that is giving comfort to people that even if a third wave comes, it’s effect will be less muted,” said  Saurabh Mukherjea, Founder, Marcellus Investment Managers.

Analysts said investors would be keenly watching further comment by Fed policymakers, including its chairman Jerome Powell.

Concerns about Fed’s rate hike had brought benchmark Sensex’s four-week winning streak came to an end last week. In the preceding four weeks, the index had risen about 8 per cent. The gains were underpinned by an extended period of low-interest rates in the US, diverting inflows into riskier emerging markets like India. In addition, the declining COVID cases in India and the possibility of easing restrictions leading to economic revival had also boosted investor sentiments.

On Monday, 398 stocks hit their 52 weeks high, and 573 were locked on the upper circuit. The market breadth was positive, with 2,049 stocks advancing and 1,258 declining on BSE.

Adani group shares rose amidst reports that the promoters purchased shares from the open market.

Two-thirds of the Sensex stocks rose. NTPC was the best performing Sensex stock and rose 3.8 per cent. Titan rose 1.8 per cent, SBI 1.6 per cent and Hindustan Unilever 1.4 per cent. Barring three, all sectoral indices rose. Power and Realty stocks rose the most, and their indices rose 2.5 and 2.3 per cent, respectively.