Bulls regain control as Sensex jumps 1,000 pts, Nifty climbs above 23,750: Top 3 factors behind market reversal

Bulls regain control as Sensex, Nifty soar in sharp rebound: Top 3 factors behind market reversal

Bulls regained control in today’s trade as benchmark indices, Sensex and Nifty, rebounded after several days of downtrend, driven by value-buying at lower levels.

Mid-cap and small-cap stocks came back with a vengeance with the Nifty Smallcap 100 clocking the highest gain (2.07%) among diversified indices. Among sectoral indices Nifty Media was the biggest gainer surging 3.84 percent led by smart gains in Zee Entertainment which was up nearly 9 percent in trade on news of Punit Goenka’s resignation as Managing Director.

Nifty IT which was among the key losers in yesterday’s trade reversed trend being among the biggest sectoral gainers.

Besides, Nifty PSE Index, which tracks 20 state-run companies, also rose more than 2 percent, with all constituents trading in the green. PSU stocks have seen in the largest erosion in value since the peak in September.

The slowdown in selling by foreign investors combined with consistent buying by domestic institutional investors (DIIs) boosted sentiment contributing to the smart recovery today, experts said. Here are the key factors behind the reversal in Tuesday's session:

1) Oversold markets: The Nifty’s Relative Strength Index (RSI) had dipped below 30 in the past two sessions, signalling oversold conditions. “Such downtrends and oversold levels often lead to short-term rebounds, and the bounce we’re seeing today was overdue,” said Akshay Chinchalkar, Head of Research at Axis Securities, in a statement to Reuters. However, analysts maintain a cautious near-term outlook due to high valuations, foreign outflows, and softening earnings growth.

2) FII selling eases: On Monday, FIIs net sold shares worth Rs 1,403 crore, according to exchange data. The pace of FII selling has slowed over the past two sessions compared to the average daily selling of Rs 3,800 crore since the beginning of October. While brokerages are divided on India’s outlook, some, like CLSA, are emphatic that India will remain among the best emerging markets to invest in, given the risks in the post-Trump regime.

On Friday, CLSA raised India allocation to 20 percent overweight while cutting exposure to China. Besides, there is also a feeling among brokerages that the correction so far has provided reasonably attractive prices for foreign investors who have been waiting on the sidelines to re-enter the market. Back home, domestic investors have been using this correction as an opportunity to aggressively deploy cash as well.

3) Firm Asian markets and dollar retreat: Asian markets advanced on Tuesday as US bond yields and the dollar eased from multi-month highs. Investors are closely watching President-elect Donald Trump’s cabinet picks and the implications for US Federal Reserve policies.

The rupee also remained stable, trading at 84.4025 against the dollar at 10:23 am, showing minimal movement from its previous close of 84.3850. Gains in regional currencies, benefiting from the weaker dollar, helped offset foreign bank demand for dollars.

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