Market barometers on Thursday were propelled by easing concerns over trade war between the US and China as well as the Reserve Bank of India’s (RBI’s) dovish stance on key rates.
The benchmark Sensex gained 578 points, or 1.75 per cent, to close at 33,597. The 50-share Nifty closed at 10,325, up 197 points, or 1.94 per cent, the most since May 25, 2016. A day earlier both indices had slumped more than 1 per cent amid escalating trade tensions between the two largest economies.
Investors took comfort after a standoff over trade between the two countries showed signs of easing. Domestically, a sharp rally in bond prices amid lowering of inflation forecast by the RBI, too, soothe their nerves.
The Bank Nifty index jumped 2.6 per cent as yields on the benchmark 10-year government bonds dropped 17 basis points to 7.13 per cent.
Broader markets, too, were buoyant. This lifted the BSE mid- and small-cap indices by 1.9 per cent and 1.86 per cent, respectively. The India VIX Index, a gauge for market volatility, cooled off by 9.4 per cent to 14.8.
“The benchmark indices had corrected 10 per cent from their peaks. Despite headwind, the current market levels look attractive for investors to commit some money,” said Motilal Oswal, managing director, Motilal Oswal Financial Services.
Oswal, however, said the market would continue to remain turbulent in the medium term.
Foreign portfolio investors (FPIs) sold net shares worth Rs 1.08 billion, while their domestic counterparts purchased shares worth Rs 6.15 billion on Thursday.
High beta banking stocks led the bull run on Thursday. State Bank of India rallied 4.7 per cent, followed by ICICI Bank and Kotak Mahindra Bank, which gained over 3 per cent each.
Tata Steel rose 3.7 per cent, recouping all of the previous day’s losses. The market breadth favoured gainers, with shares of 2,083 companies advancing against 627 declining.
According to experts, Thursday’s gains are a temporary relief as the market faces several challenges.
“The valuations continue to be a concern. Toxic assets in the banking system are yet another key worry for the Indian equities. It remains reasonable to assume forward returns at the index level will remain muted,” said Sunil Sharma, chief investment officer, Sanctum Wealth Management.
While the trade war tensions have subsided for the time being, markets are still unsure about how this scenario will play out. The near-zero interest rate regime in the developed economies is also coming to an end as the US Federal Reserve has embarked upon the interest rate hike journey.
On the domestic front, 2018 would be a politically busy year with four states bound for elections. Any disappointment for the current ruling dispensation could hurt market sentiments. Revival in the earnings and the progress of monsoon would be another important trigger, experts said. A less-than-expected rainfall can alleviate rural distress and adversely affect the economy.