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Sensex rallies over 400 points; 4 factors which could be fueling rally on D-Street

Sectorally, the rally was seen in the Banks, Auto, Financial Service, FMCG, IT and Metals stocks.

April 27, 2020 / 04:23 PM IST

The S&P BSE Sensex cooled off slightly after rallying by over 700 points in intraday trade on April 27 but still closed strong with the Sensex rising more than 400 points.

At close, the Nifty50 gained 127.90 points or 1.40 percent at 9,282.30, while the BSE Sensex rose 415.86 points or 1.33 percent to 31,743.08.

Sectorally, the rally was seen in the Banks, Auto, Financial Service, FMCG, IT and Metals stocks.

We have collated a list of top four factors which could be fuelling bullish sentiment on D-Street – 

RBI extending liquidity support to MFs:

The closure of its six debt schemes by Franklin Templeton hit investor sentiment to a large extent. History suggest that this usually results in more redemptions and may lead to liquidity problems for the mutual fund industry.

Heightened volatility in capital markets in reaction to COVID-19 has imposed liquidity strains on mutual funds (MFs), which have intensified in the wake of redemption pressures related to the closure of some debt MFs and potential contagious effects therefrom. The stress is, however, confined to the high-risk debt MF segment at this stage; the larger industry remains liquid.

The RBI has stated that it remains vigilant and will take whatever steps are necessary to mitigate the economic impact of COVID-19 and preserve financial stability. With a view to easing liquidity pressures on MFs, it has been decided to open a special liquidity facility for mutual funds of Rs 50,000 crore.

“More than a crisis of liquidity, it is a crisis of confidence. In order to bring back confidence, the RBI has announced the liquidity support measures for the mutual funds specifically. This will serve to alleviate the fears in the minds of investors and also dissuade many from getting into the redemption mode,” Dr. Joseph Thomas, Head of Research - Emkay Wealth Management told Moneycontrol.

“Even then, the after-effects of the low rated credit risk fund portfolios may haunt the mutual funds for some more time to come because of the economic slowdown and the resultant sluggishness in economic activity emanating from the pandemic. Timely and extremely laudable action from the RBI,” he said.   

Positive global cues:

Indian market started off on a strong note on Monday thanks to positive global cues. Asian markets closed firmly in the green.

MSCI’s broadest index of Asia-Pacific shares outside Japan rose 1.81 percent, taking back a chunk of last week's 2.6 percent decline. Japan’s Nikkei gained 2.71 percent, Hong Kong's Hang Seng was up 1.88 percent, Australia's ASX 200 up 1.5 percent and South Korea's Kospi rallied 1.79 percent.

Central Bankers' action lending support to Equity markets:

In an attempt to shore up the economy, Bank of Japan expanded monetary stimulus and pledged to buy an unlimited amount of bonds to keep borrowing costs low as the government tries to spend its way out of the deepening economic pain from the coronavirus pandemic.

To ease corporate funding strains, the BOJ said, it will boost by three-fold the maximum amount of corporate bonds and commercial debt it buys to 20 trillion yen ($186 billion), said a Reuters report.

The central bank also clarified its commitment to buy unlimited amounts of government bonds by scrapping loose guidance to buy them at an annual pace of 80 trillion yen, it said.

Reports suggest that the Federal Reserve and the European Central Bank meeting later in the week, with the latter likely to do more bond-buying.

Technical Factors:

The Nifty50 consolidated in a range of 8,820 to 9,400 levels from the last ten trading sessions whereas supports are slightly shifting higher while resistance is intact at 9400 levels.

The index rose above the swing high of 9,343 recorded on April 23 which gave confidence to the bulls, but failed to hold on to 9,300 levels. For a sustainable move, the Nifty50 should close above 9,343-9,400 levels in coming sessions.

“It has to cross and hold above immediate hurdle of 9,400 levels to extend further move towards 9,700 levels while on the downside support exists at 9,000 then 8,888-8,820 levels,” Chandan Taparia, Vice President | Analyst-Derivatives at Motilal Oswal Financial Services Ltd told Moneycontrol.

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Kshitij Anand
Kshitij Anand is the Editor Markets at Moneycontrol.
first published: Apr 27, 2020 12:48 pm