Sensex, Nifty rally as crude oil eases 27% from highs; US Fed in focus

Equity markets followed in their global peers’ footsteps on Wednesday and sharply recouped previous session's losses as global investors pinned hopes on Russia-Ukraine talks for de-escalation of the war amid easing of crude prices. The BSE Sensex is up around 900 points at 55,600 levels, while the Nifty50 is comfortably firm above 16,900-mark. 

The domestic markets had logged strong gains for five consecutive sessions until Tuesday, on state election results’ euphoria and Ukraine’s disinterest in becoming a NATO member, which had raised expectations of a truce between the two countries.

Although, since no breakthrough headway came after Tuesday’s talks, investors turned cautious right on the heels of the US Fed policy outcome and amid resurgence in Covid-19 cases in China.

The increasing cases of covid in China affected investor sentiments, which resulted in heavy selling in the previous session, but we believe Tuesday's fall is just a short-term correction as Nifty has gained more than 6 per cent in the preceding five sessions, said Mohit Nigam, Head - PMS, Hem Securities.

According to Ravi Singh, Vice President and Head of Research, Share India, the hopes for further Russia Ukraine talks has calmed down the panic selling in the broader indices for a while. 

Moreover, the government's statement that it will not raise petrol or diesel prices in the near future has also helped lift sentiment on Wednesday, said Ravi Singhal, Vice Chairman, GCL securities. 

Let’s read in detail the factors that led to a strong recovery in equities on Wednesday

Oil prices cool-off: Crude prices on Tuesday settled below the $100 per barrel mark for the first time since March 1 as fresh lockdowns in China’s manufacturing hubs on account of a new covid-19 wave signalled at possible reduction in petroleum demand in China, which is the world’s largest importer of crude.

Brent Crude was one per cent higher this morning at $101 a barrel level, but still down 27 per cent from its recently hit 14-year high of $139.

The easing off-prices is not limited to oil, but several commodities including metals and gold have also come off their record high levels. Moreover, Russian Foreign Minister Sergei Lavrov’s statement on Tuesday that negotiations on reviving the Iran nuclear deal were nearing an end also lifted sentiments.

Bets on Russia-Ukraine truce: Following Tuesday’s cease-fire talks, Ukrainian President Volodymyr Zelenskyy said that Russia's demands were becoming "more realistic”. As per reports, Zelenskyy’s senior aide Ihor Zhovkva said that Russia has softened its stance in the talks over a possible settlement.

Talks between Russian and Ukrainian representatives have become more constructive and Russia has changed tone and stopped airing demands for Ukraine to surrender, he reportedly said. The two sides are expected to meet again on Wednesday as investors keenly await for a sign of peace.

Global markets recover: The US markets on Tuesday logged smart gains on the back of falling crude prices and lower-than-expected rise in US producer price index. The US PPI for final demand climbed 0.8 percent in February, lower than economists’ expectations of 0.9 per cent, and the 1 per cent jump reported in the previous month.

The S&P 500 rose 2.1 per cent, the Dow Jones gained 1.8 per cent and the Nasdaq Composite advanced 2.9 per cent.

Asian markets that languished with steep losses for the past two consecutive days also recovered with strong gains. Hong Kong’s Hang Seng index, which fell 6 per cent on Tuesday, recouped all losses and surged 8 per cent in noon trade.  

US Fed policy outcome in focus: Lastly, investors are anticipating a key Federal Reserve monetary decision Wednesday, in which the central bank is expected to hike rates for the first time since 2018. This move is likely to set the tone for the global as well as domestic markets in the near-term. 

"Global markets have also digested the expected rate hike of 25 basis points by the US Fed, however some volatility is expected after the FOMC meeting outcome overnight today," said Santosh Meena, Head of Research, Swastika Investmart.