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Sensex jumps over 2,400 points; 4 factors which fuelled the rally

April 07
19:02 2020

Indian market opened with a strong gap on the upside on April 7 which fuelled a 2500-point rally in Sensex, while the Nifty50 reclaimed 8,800 levels in intraday trade.

Eventually, Sensex closed 2476 points, or 8.97 percent, higher at 30,067.21 while Nifty settled 708 points, or 8.76 percent, up at 8,792.20.

All sectoral indices closed with healthy gains, with BSE Bankex and Energy indices logging gains of 10.70 percent and 10.02 percent, respectively.

The current price action could be categorized into a trading rally and investors should not mistake it with a market bottom which could well be some time away.

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“Market sold off aggressively and value is beginning to emerge in a lot of pockets especially the one which got rapidly sold off, but we have to keep in mind that the economic recovery is still some time away and in the meantime we could see some of these trading rallies,” Nilesh Shah – MD & CEO – Envision Capital said in an interview with CNBC-TV18.

“I describe today’s move as a trading rally or some kind of a pullback and this is something which will keep on happening in a bear market,” he said.

We have collated a list of 4 factors which probably fuelled optimism on D-Street:

Rally in Asian markets:

Asian markets rallied on strong price action seen on Wall Street after initial reports suggest that the coronavirus crisis may be levelling off in New York and receding in Europe.

Japan’s Nikkei rose 2% and has erased most of last week’s losses after Prime Minister Shinzo Abe promised a massive $ 991 billion economic stimulus package – equal to 20% of GDP, said a Reuters report.

MSCI’s broadest index of Asia-Pacific shares outside Japan pared early gains, but rose almost 1%, it said.

India may get $ 1.3-bn passive flow: Morgan Stanley

With India swiftly responding to the delay in notifying sector-wise limits for investment in stocks by overseas investors, analysts at Morgan Stanley now expect MSCI to rebalance MSCI India weight in the emerging market (EM) index, Business Standard reported quoting a report from Morgan Stanley.

“To reflect this change along with removing the DR (depository receipts) in the foreign ownership limit (FOL) calculation. As a result, they estimate $ 1.3 billion in passive inflows into the Indian equities spread across a bunch of stocks,” the report added.

India lifts restrictions on 24 drug exports amid coronavirus

The government has lifted restrictions on the export of 24 pharmaceutical ingredients and medicines made from them, the government said in a statement, Reuters reported.

It had imposed the restrictions last month as the coronavirus outbreak disrupted global supply chains. Paracetamol, a common pain reliever, and its formulations were not included in the list of drugs freed up for export.

The 26 active pharmaceutical ingredients and medicines accounted for 10% of all Indian pharmaceutical exports and include several antibiotics, such as tinidazole and erythromycin, the hormone progesterone and Vitamin B12, added the report.

Pharma stocks have been gaining of late as industry experts and brokerages believe that the sector is better placed to navigate the crisis during COVI-19 outbreak even though the challenges faced by it are all same.

Value buying at lower levels:

The Indian market has fallen by about 30 percent from its recent high has put benchmark indices in an oversold zone.

“In a bearish scenario, sector leaders with relatively stronger balance sheets, higher earnings visibility, strong cash flows, and management with a good track record should be preferred. Investors should avoid companies with high leverage,” Mahesh Patil, CIO – Equity, Aditya Birla Sun Life AMC told Moneycontrol.

“Good quality companies in small-ticket consumer discretionary sector which have corrected can bounce back. The demand destruction they have seen is temporary and they can see long term growth due to low penetration and rising per-capita income. Private banks have seen a sharp correction but those with a strong liability franchise and high-quality assets may gain market share. Also, insurance companies should continue to see secular growth,” he said.

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