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Sensex spikes over 1,000 points: Four factors behind the market rally

Thanks to the buying, equity investors’ wealth – reflected in the total market cap of BSE listed firms – rose to Rs 3.75 lakh crore within 90 minutes of trade

June 21, 2022 / 02:02 PM IST

Indian equities continued upward march for second straight session on June 22, as low-level buying pushed benchmark indices higher. Strong global cues and some positive commentary from analysts also helped the market recover from the recent onslaught.

The 30-share flagship BSE Sensex advanced over 1061 points or 2 percent to trade over 52,600-level. Its broader peer NSE Nifty climbed 322 odd points and hovered around 15,700 level. Broader market indices namely the Nifty Smallcap 100 and Nifty Midcap 100 also rose about 2 percent each.

Thanks to the buying, equity investors’ wealth – reflected in the total market cap of BSE listed firms – rose by Rs 5.18 lakh crore. The total market cap stood at Rs 240 lakh crore.

Among the biggest bluechip gainers of the day were Titan, Tata Motors HCL Tech, Hindalco Industries, JSW Steel and TCS which spiked 2-6 percent. There were no losers among the Nifty 50 names.

Below are key factors that led to buying in the market:

Relatively cheap valuation

Equities have been battered black and blue in the last few months, and thus many quality names are also available at bargain prices. This has attracted long-term investors into the market. This low level of buying is one of the main reasons for the surging market today.

Many analysts have come out with recommendations that are available at ‘cheap’ valuations. For instance, Jefferies believes IndusInd Bank, ICICI Pru Life, LIC Housing, Piramal Enterprises, Godrej Prop, DLF, Infosys, Coforge, Jubilant Food, Godrej Consumer, Dixon Tech, Crompton Electricals, Voltas, Fortis Healthcare and Gland Pharma are top picks.

Bullish commentary

CLSA in a report said its proprietary India Bull-Bear Index signals a crash in equity market sentiment to 92 percent bearish from 99 percent bullish nine months ago.

“Our back-testing shows 90-95 percent bearish points to have produced good 3M/12M returns in nearly all instances since 2007 barring the deep bear markets of 2008 and 2020. A sharp fall in trading volume may also suggest waning selling intensity,” the broker said.

It believes it is a BUY signal except. The broker added DLF to CLSA’s India-focused portfolio, which has outperformed 3.6 percentage points YTD and by 33.8 percentage points since Jan 2021.

Global cues

Entire Asia basked was trading in the green, which followed buying in European stocks on Monday that rose up to 2 percent. This improved sentiments on Dalal Street as well on Tuesday.

In Aisa, Japanese Nikkei climbed over 2 percent, Hong Kong’s Hang Seng also rose about 2 percent. Taiwan, South Korea, Indonesia, and Thailand equity benchmarks also traded with gains.

Crude oil prices

Another reason why Indian investors have turned bullish is a drop in crude oil prices. The Brent crude oil prices have retreated about 9 percent in the last week. Crude oil is the key input material for many companies, and a drop in prices mean better margins for them.

"On MCX, oil prices can take support near Rs 7600-7200 while upside resistance remain near Rs 9500 -10000 while in NYMEX the support is near$96-92 while resistance is near $116-125," said analysts at Globe Research.
Shubham Raj
first published: Jun 21, 2022 11:36 am