Markets zoom over 2.5%; Sensex, Nifty post second-biggest gain of 2022

India’s benchmark indices posted one of their biggest gains of the year on Tuesday amid positive momentum in global markets following this month’s crash. Investor sentiment was seen improving after China, the world’s second-largest economy, relaxed lockdowns in Shanghai and reaffirmed support for internet companies.

The Sensex soared 1,344 points, or 2.54 per cent, to end at 54,318, and the Nifty50 index surged 417 points, or 2.63 per cent, to 16,259. This was the biggest single-day gain for both the indices since February 15, when they had climbed over 3 per cent each.

Foreign portfolio investors (FPIs) sold shares worth Rs 2,192 crore on Tuesday, while domestic institutional investors poured in almost an equal amount. The quantum of FPI selling was lower than the average daily selling of Rs 2,900 croreseen this month.

The Indian markets had dropped close to 8 per cent this month before Tuesday’s rebound as investors fled risky assets on fears of stagflation. Even after the latest bounce, the benchmark gauges are down close to 5 per cent on a month-to-date basis.

Headwinds such as the US Federal Reserve’s decision to aggressively tighten monetary policy to curb inflationary pressures, China’s strict Covid-management approach, and a jump in commodity prices due to global supply chain disruptions have sparked concerns about a slowdown in global growth.

The latest boost to equities came after Shanghai, China’s financial hub, reported no new local virus cases for a third straight day, triggering optimism that the government will relax its punishing lockdowns. The economic cost of China’s strict zero Covid policy had investors worried. Also, Chinese Vice Premier Liu He's efforts to soothe internet-based businesses was received positively by investors, triggering a sharp rally in tech stocks.

“We expect the uncertainty and volatility to continue in the near term. Over the past few days, all intra-day recoveries are getting sold off, and various technical levels are getting broken, making the markets more nervous. The markets will continue to remain influenced by incremental news flows related to central bank actions, especially the US Fed, and inflationary trends. In the short term, there could be some technical pull-backs in the markets, considering the excess pessimism that seems to be floating around and the oversold conditions that we are into,” said Milind Muchhala, executive director, Julius Baer India.

All the Sensex and Nifty components ended with gains, so did all sectoral indices, on Tuesday. Reliance Industries jumped 4.3 per cent and made a 316-point contribution to the Sensex gains. Commodity shares rallied the most, with the BSE Metal index climbing nearly 8 per cent on China optimism. Vedanta, Hindalco, and Tata Steel jumped 12 per cent, 9.5 per cent and 7.6 per cent, respectively.

Experts said technical factors propelled the markets on Tuesday.

“Markets witnessed a sharp relief rally as the recent slump had put key indices in an oversold territory. Traders covered their short positions in several beaten-down stocks that propelled key benchmarks. However, the rally could be short-lived as the unabated FPI selling coupled with concerns of further rate hikes to tame inflation may fuel volatility,” said Shrikant Chouhan, head of equity research (retail), Kotak Securities.