Why Sensex surged 1,200 pts from day's low, Nifty topped 24,000 today?

In a remarkable turn of events, benchmark equity indices BSE Sensex and NSE Nifty50 pared early losses to trade in the green during intra-day trade on Tuesday. The BSE Sensex climbed as much as 1,226.43‬ points, or 1.62 per cent, from the day's low to reach a high of 79,523.13 before settling at 79,476.63.

 

Similarly, Nifty50 jumped 386.30 points, or 1.62 per cent, from the day's low to hit an intra-day high of 24,229.05 before ending the Tuesday’s session at 24,213.30.

 

As many as 39 out of 50 constituent stocks in the Nifty 50 ended in gains, led by JSW Steel, Tata Steel, Hindalco, Bajaj Auto, and Axis Bank. 

 

 

Meanwhile, here are the key reasons that propelled the Sensex and Nifty to recover losses on Tuesday:   

Recovery in financials and metal stocks

Metal stocks posted sharp gains on Tuesday, with the Nifty Metal index climbing over 3 per cent to 9,525.30, led by JSW Steel, Steel Authority of India (SAIL), and Hindalco Industries. Similarly, financial services also posted massive gains, as the Nifty Financial Services index climbed 2.17 per cent to reach the day's high of 24,174, led by Axis Bank, Cholamandalam Investment & Finance, and ICICI Lombard General Insurance.

 

Deepak Jasani, Head of Retail Research at HDFC Securities, attributed the rally in these two sectors to a recovery in benchmarks during the second half of Tuesday’s trading session. "Metal stocks climbed on expectations of further stimulus measures by the Chinese government after the country's parliament meeting concludes on Friday," said Jasani.

 

US Fed policy decision

The voting for the US presidential elections ends today. Notably, the race for the presidential chair has been fierce between the incumbent Vice President Kamala Harris and former US President Donald Trump. The battle remains too close in seven swing states – Arizona, Georgia, Michigan, Nevada, North Carolina, Pennsylvania, and Wisconsin – as these swing states are expected to play a major role in deciding the winner.   Ahead of the US presidential election results, investors are largely pricing in a Federal Reserve interest rate cut of 25 basis points (bps) at its policy announcement on Thursday, with CME's FedWatch Tool showing a 98 per cent chance of a cut and a 2 per cent chance of rates remaining steady.

 

G Chokkalingam, Founder & Head of Research at Equinomics Research, noted that positive sentiment surrounding Donald Trump's potential win in the US presidential election may have also supported the market recovery.

 

Strength in Asian markets  

Asia-Pacific markets closed higher today, boosting positive sentiment in domestic equities. Japan's Nikkei closed up 1.11 per cent, China's main CSI 300 rose 2.52 per cent, the Shanghai Composite closed up 2.32 per cent, and Hong Kong's Hang Seng was up 2.14 per cent.  

 

Japan's market rallied after the 'Culture Day' holiday, while China's indices surged as a private survey indicated that China’s services sector in October grew at its fastest pace in three months.  

 

The Caixin/S&P Global Services Purchasing Managers’ Index climbed to 52.0 in October, up from 50.3 in September, driven by increased confidence in future output and higher business activity. A reading above 50 indicates expansion, while a figure below 50 reflects contraction.

 

Technical indicators 

The Nifty Index reclaimed the 24,000 mark following a strong recovery from today’s low. Notably, the index respected yesterday's low of 23,816, with today’s low at 23,842. Jigar S Patel, Senior Manager - Technical Research Analyst at Anand Rathi Shares and Stock Brokers, said, "On the technical side, the daily RSI showed a bullish divergence as the index rebounded from the day's low." Patel believes that in the coming sessions, the 24,500 level will be critical, as a decisive close above it could signal a potential market bottom. Additionally, a close above 24,200 today would form a bullish piercing candlestick on the daily chart, indicating fresh bullish momentum. The 23,800-24,500 range will be key to monitor going forward.

 

According to Gaurav Bhandari, CEO of Monarch Networth Capital, the markets were looking for a reason to trigger a short-covering rally, with the probable outcome of the US elections serving as the catalyst today. FIIs were holding substantial short positions on the index, with a long-to-short ratio of just 20 per cent. Bhandari explained, "Whenever this ratio drops to 20 per cent or below, a massive short-covering rally typically follows." He believes this rally has just begun and anticipates further short-covering in stocks in the coming days.