From freaky Friday to TGIF, markets take a U-turn: 4 factors fuelling the rally

From freaky Friday which we started with, when benchmark indices hit a lower circuit in the morning, to Thank God its Friday (TGIF) – markets have taken a complete U-turn intraday.

The Nifty50 bounced back after hitting a low of 8,555 while Sensex which broke below 30,000 witnessed one of the biggest intraday recoveries.

So, what led to the optimism on D-Street? D-Street saw a steep fall when the S&P BSE Sensex fell by 3390 points or little over 10 percent while the Nifty50 plunged more than 1000 points to hit a lower circuit.

The benchmark indices have seen a sharp recovery of intraday losses in late morning deals and strengthened more in the afternoon especially after strong rally seen in European peers and even the Dow Jones futures recovered more than 1,000 points from lows.

We have collated a list of factors which could be fueling the recovery on D-Street:

Dow Futures recovered sharply, and European markets also opened with some green as central banks from the United States to Australia pumped liquidity into their financial systems.

Hopes grew that U.S. Democrats and Republicans could pass a stimulus package on Friday, said a Reuters report. “While there was no firm explanation from investors on just what prompted the late comeback, some believe the plunge may have run its course for now,” it said.

The report further added that Japan’s central bank pledged to buy 200 billion yen ($1.90 billion) of five- to 10-year Japanese government bonds and also inject an additional 1.5 trillion yen in two-week loans.

U.S. lawmakers and the White House neared agreement on a coronavirus economic aid package, with House Speaker Nancy Pelosi saying she hoped to announce a deal on Friday.

The U.S. Federal Reserve on Thursday offered a hefty $1.5 trillion in short-term loans to stimulate the economy and stabilize the financial system.

SEBI says ready to take suitable actions required:

The market regulator Securities and Exchange Board of India today issued a statement on the sharp movements seen in the market.

The statement said that SEBI and stock exchanges are prepared to take suitable actions as required.

"Over the last few days, the Indian Stock Market has been moving in tandem with other global markets owing to concerns relating to COVID-19 pandemic, resultant fear of economic slowdown, recent fall in global crude prices, etc.," said SEBI statement.

“SEBI's confidence in the risk management framework in the derivatives active tracking of margin payments, collateral adequacy and pay-in obligations by brokers/CMs gives reassurance that the clearing & settlement mechanism continues to operate without any dislocations especially since the derivative markets are highly leveraged," Tejas Khoday, CEO & Cofounder, FYERS told Moneycontrol.

"When Nifty hit a 10% lower circuit today, as per the rules, the exchange cancelled all the pending orders. This impacts brokers' risk management and traders/investors because pending stop losses for open positions are removed when the circuit limit is touched thereby exposing them to further losses when the market re-opens and continues to slide downwards," he said.

Coronavirus scare has grown multi-fold post its spread across the key economic zone of Europe and US. Of course, while the numbers of affected cases in India, currently, are not significant, experts believe that the pre-emptive geographical lockdown is likely to keep the overall numbers within a limit.

The recent fall which started from Jan 20 when Sensex and Nifty50 hit a record high, investors’ have lost more than Rs 30 lakh cr in terms of market capitalisation. The benchmark indices are down by about 20 percent effective trading in a bear zone.

Nonetheless, the outbreak of the coronavirus will definitely have an overall impact on global as well as Indian GDP growth in the interim, but it is presenting a golden opportunity for long term investors.

“Historically, it has been seen that market recovery in such case is usually sharp and quick and precedes the economic growth rebound,” Pankaj Pandey, Head – Research, ICICI direct told Moneycontrol.

“Therefore, we see the current correction as buying opportunities for the investors who should utilise the declines to lap up the good businesses which have comfortable leverage, strong return ratios and enjoy leadership position. The allocation, however, can either be made in staggered or in a lump sum, depending on investor’s risk appetite,” he said.

Indian rupee reclaims lost ground

The Indian rupee staged a recovery in the afternoon session on Friday, trading 36 paise higher against the US dollar after the Reserve Bank stepped in to maintain sufficient liquidity in the panic-stricken currency market.