4 factors that fuelled Sensex's 700-point rally today

After declining nearly 3 per cent in the week gone by, benchmark indices made a strong comeback on Monday. The S&P BSE Sensex jumped 718 points or 2.15 per cent to settle at 34,067while NSE's Nifty50 index reclaimed the 10,250 mark to end at 10,251, up 221 points or 2.20 per cent. Broader market, too, participated in the rally with the S&P BSE MidCap and Small-Cap indices gaining 2.80 per cent and 2.06 per cent, respectively. 

Buying was witnessed among PSU banks, autos, IT, metals and pharma. The resolution of Essar Steel insolvency case and Supreme Court’s order to revive mega power projects were mainly responsible for the rally in PSU stocks today. On the earnings front, Q2FY19 numbers have largely been mixed. Oil, too, has been on a correction mode this month which is good for emerging markets such as India. With the recent correction in the market, valuations have become attractive, said Hemang Jani, Head - Advisory, Sharekhan by BNP Paribas. "Some of our preferred picks are Aarti Industries, ICICI Bank and UPL. With state and general elections around the corner, investors should brace themselves for the volatility ahead and use any dips to acquire quality companies, Jani added.

Here's a look at key factors that led to over 700-point jump in Sensex today -

PSU banks rally: Shares of state-run banks rallied in the trade after the Reserve Bank of India (RBI) said it will inject Rs 400 billion in the banking system next month. “Based on an assessment of the durable liquidity needs going forward, RBI has decided to conduct purchase of government securities under open market operations for an aggregate amount of Rs 400 billion in the month of November 2018,” it said. That apart, reports also suggested that the government expects some changes in the prompt corrective action (PCA) framework prescribed by the Reserve Bank of India (RBI) to enable more sanction of credit by PSU banks.

The Nifty PSU Bank index gained 8 per cent to end at 2,778 with all the 12 constituents ending in the green. Top gainers in the index were Oriental Bank of Commerce (up 13 per cent), Canara Bank (up 12 per cent) and Union Bank (up 11 per cent). 

Q2 results impact

Index heavyweight ICICI Bank climbed nearly 12 per cent – contributing over 200 points to Sensex’s gain after the company reported a better-than-expected results for September quarter. That apart, Dr Reddy's gained 6.5 per cent to Rs 2,559 on the BSE in intra-day trade after the company reported a good operational performance in September quarter (Q2FY19), on account of lower R&D, higher other income, financial income, and lower tax.

Shares of Divi’s Laboratories surged 14 per cent to Rs 1,433 during the day after the company reported a healthy 92 per cent year-on-year (Y-o-Y) jump in its net profit at Rs 3.98 billion in September quarter (Q2FY19), on back of strong revenue growth. 

Oil prices cool-off

Oil prices dipped on Monday. In the afternoon trade, front-month Brent crude oil futures were trading down 46 cents, or 0.6 per cent, at $77.16 a barrel at while US West Texas Intermediate (WTI) crude futures were at $67.19 a barrel, down 40 cents, or 0.6 per cent, Reuters reported. Oil has slumped about 12 per cent from a four-year high earlier this month as a rout in global equity markets raised concerns about economic growth and energy demand at a time of growing US crude inventories.

  

Firm rupee

Rupee, on Monday, traded 18 paise higher at 73.29 against the US dollar after ending 20 paise lower at 73.47 on Friday. HDFC securities expects Indian rupee to strengthen in the coming days as dollar demand from imports will cool off and higher than previous open market operation (OMO) by central banks will lead gain in the domestic unit.