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Banks, Tech, RIL power Sensex to 3-month high: Factors that led to the rally

All sectoral indices traded in the green. IT, financials, metals and realty were up 1-2 percent each and the BSE midcap and smallcap indices, too, gained

July 28, 2022 / 04:19 PM IST
Stock Market, Share Market

Stock Market, Share Market

The Indian equity benchmarks posted healthy gains on July 28 on strong global cues after the US Federal Reserve raised interest rates by 75 bps and chairperson Jerome Powell brushed aside talk of a recession.

At close, the Sensex was up 1,041.47 points, or 1.87 percent, at 56,857.79, while the Nifty was up 287.80 points or 1.73 percent at 16,929.60.

"I do not think the US is currently in a recession," Powell said after the end of the US central bank's latest policy meeting, citing an unemployment rate that is still near a half-century low and solid wage growth and job gains. "It doesn't make sense that the US would be in recession," a Reuters report quoted him as saying.

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All sectoral indices were trading in the green, led by information technology, financials, metals and realty, which added 1-2 percent each. The BSE midcap and smallcap indices were up over half a percent each.

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According to Siddhartha Sanyal, Chief Economist and Head of Research at Bandhan Bank, the US Fed’s 75 basis point rate hike was expected, as it stayed “highly attentive” to inflation risks.  US inflation remains at a multi-decade high even though commodity prices have started showing signs of cooling.

The FOMC also noted that recent indicators of spending and production had softened. On balance, thus, while more rate hikes are almost certain in the near term, the Fed will likely get a chance to shift to a lower gear by the end of the year, he said.

Also read: Sensex, Nifty gain 5% in July as rate hike fears ease, commodities soften, FIIs return

Here are the factors that have propelled markets higher:

1 Strong global cues

US equities rose sharply and the dollar lost ground as investors bet the Federal Reserve would slow interest rate hikes following its announcement of an increase in rates in line with expectations.

The Dow Jones Industrial Average rose 436.05 points, or 1.37 percent, to 32,197.59, the S&P 500 gained 102.56 points, or 2.62 percent, to 4,023.61 and the Nasdaq Composite added 469.85 points, or 4.06 percent, to 12,032.42.

Following positive US markets, Asian equities also gained on July 28, with Nikkei, Kospi and Shanghai trading in the green.

2 US Fed hikes rate by 75 bps against the feared 100 bps

The US Federal Reserve raised interest rates by 75 basis points against an expected hike of 100 bps on July 27. The American central bank gave the future interest rate guidance in the range of 3 percent to 3.5 percent. Analysts said the Fed, through its commentary, has made markets believe that this interest rate upcycle may not last long contrary to what was anticipated. This may have positive implications on equities globally, they said.

Also read: Should you invest in a recession-hit stock market?

3 FIIs return to Indian markets

Analysts believe that the markets were extremely oversold with foreign investors selling Indian shares worth nearly $28.70 billion, so far, this year. The selling pace of the FIIs reduced in July. The foreign institutional investors net sold Indian stocks worth $146 million this month compared to more than $6.34 billion in June.

4 The rupee rises as the US dollar falls

The rupee appreciated 14 paise to 79.77 against the US dollar in the early trade on July 28, tracking overnight weakness in the American currency. However, higher oil prices, month-end importer demand and global recession fears could restrict the gains for the local unit, forex traders said.

At the interbank foreign exchange, the rupee opened at 79.80 against the American dollar and touched 79.77 in initial deals, registering a gain of 14 paise over the last close. On July 27, the rupee declined 13 paise to close at 79.91 against the dollar.

Technical View

Shrikant Chouhan, Head of Equity Research (Retail), Kotak Securities

Indian benchmark indices outperformed their Asian peers on the last day of the current month expiry, as there was no surprise in the rate hike decision by the US Federal Reserve which came on expected lines, fuelling a rally in the US markets. The upbeat mood also had a rub off effect on the domestic market, leading to buying in banking, IT, metals and realty stocks. Investors feel that RBI too may not sprung any major surprise in the next week's monetary policy meeting on hopes inflation will see a downward curve going ahead.

Technically, the Nifty has formed a long bullish candle on daily charts which is largely positive. The short term trend is looking positive but due to temporary overbought situations we could see some profit booking at higher levels. For traders, the 200-day SMA of 17025 and 17100 would act as immediate resistance levels. On the flip side, 16800-16750 could be key support levels.

Gaurav Ratnaparkhi, Head of Technical Research, Sharekhan by BNP Paribas

Post a brief consolidation, Nifty has moved out of it on July 28. With a gap up opening, it crossed the swing high of around 16750 and went on to cross the June high of about 16800. The bulls maintained upper hand throughout the day. Thus 16750-16800 now becomes a near term support zone. As long as the index trades above this zone it can continue to march higher towards 17000 where there is 61.8% retracement of the April-June decline and the 200-DMA. If the bulls manage to take out the level of 17000, then the index can stretch towards 17200 in the short term.

Disclaimer: The views and investment tips expressed by experts on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.​
Sandip Das
first published: Jul 28, 2022 12:29 pm
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