Nifty, Sensex recoup half of Thursday's losses: Factors at play

After the worst day in nearly two years for the domestic stock market on February 24, benchmark indices managed to recoup half of the losses in today’s session.

The Nifty 50 index rose 2.5 percent, or 413.8 points, at 16,661.8 while the BSE-Sensex climbed to 55,860, up 1,330 points or 2.5 percent.

Global equity markets came under severe pressure on February 23 after Russia announced military actions in Ukraine. Russia’s actions triggered sharp risk aversion in global equities and led to surge in global commodity prices, especially crude oil.

Catch all the live market action here.

That said, much of the market’s reaction was driven by the fear the Western Countries will impose harsh sanctions on the Russian economy including an exile from the SWIFT payment system that would lead to a massive rally in global commodity prices at a time when inflation is at the center of the current economic discourse.

The primary factor, therefore, driving the short covering in the domestic and global markets on February 25 is the relief that the economic sanctions announced by the US and others have so far not included any exile of the Russian economy from the global SWIFT payment system. The moderation in global crude oil prices after US President Joe Biden’s speech on Thursday was a reflection of this relief.

Secondly, the heightened geopolitical tensions and their possible impact on global growth have led investors to believe that US Federal Reserve will ton down its aggressive interest rate hike pitch going ahead. Prior to the Russian invasion, higher interest rates were the major reason for risk aversion in global markets.

Traders now believe that the Fed will not raise interest rates by 50 basis points, as feared earlier, but will still raise them by 25 basis points given that US inflation still remains at multi-decade highs.

Lastly, the ability of the Nifty 50 index to defend the 16,200 points mark on Thursday provided some sense of comfort to traders. While the Nifty 50 did slip below several long-term moving averages, it became a trigger for many investors who had been sitting on the fence due to concerns over high valuations to dip their toes in the market.

“Expect trades to slot into the 16,430-16,620 region initially, but the key event to watch out today would be a potential decline in VIX and consequent erosion in premium,” said Anand James, chief market strategist at Geojit Financial Services. The volatility gauge India VIX nosedived 18 percent during the session.Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.