Snapping a six-day losing streak, the BSE Sensex climbed over 500 points while the NSE Nifty50 topped the 17,000 mark in Thursday’s trade, ahead of the expiry of September series futures and options contracts.
The indices rebounded, tracking strong gains on Wall Street overnight, after the Bank of England (BOE) said it would buy long-dated British bonds in a move aimed at restoring financial stability in the country.
Adding to the sentiment was a recovery in rupee against the US dollar. Oil prices edged lower while monthly F&O expiry and technical factors also helped domestic stocks rise in early trade.
“When negative sentiments become dominant, the risk-off gathers momentum and markets get oversold. Then, usually, an unexpected trigger reverses the near-term outlook, leading to short coverings. This was precisely what happened in global markets when the Bank of England surprised markets with Quantitative Easing,” said V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services.
Vijayakumar of Geojit Financial Services noted that BoE decision was a reflection of economic woes of the UK. “But the market’s interpretation of the BoE’s surprise decision is that the Fed might pause its rate hike to avert a sharp economic downturn. The relief rally is likely to soon run out of steam and, therefore, investors need not make aggressive buys now,’ he said.
Wall Street rally
US stocks rallied after the BOE’s intervention tentatively halted the bond market selloff, said Edward Moya, Senior Market Analyst, The Americas OANDA.
The 30-pack Dow Jones Industrial Average rose 548.75 points or 1.88 per cent overnight to close at 29,683.74. The S&P500 index advanced 1.97 per cent to 3,719.04 while Nasdaq Composite added 2.05 per cent to 11,051.64.
Asian markets catch up
Asian markets added up to 1.8 per cent in early trade. Hong Kong’s Hang Seng gained 0.8 per cent; Japan’s Nikkei advanced 0.5 per cent while China’s Shanghai Composite rose 0.27 per cent by 9.19 am IST. Domestic stocks were no exception.
“The key positive catalyst is yields in the US and Europe retreated after the Bank of England’s announcement that it will carry out temporary purchases of long-dated UK government bonds in order to restore orderly market conditions offered investors some support,” said Prashanth Tapse, Senior VP for Research at Mehta Equities.
Rupee recovers, oil falls
Amid global developments, rupee covered from a record closing low of 81.94 high on Thursday and was trading at 81.59 level against the greenback in early trade. A fall in rupee hurts foreign flows or vice versa. Provisional data showed FPIs were net sellers to the tune of Rs 2,772.49 crore on Wednesday.
Meanwhile, Brent crude futures also fell 59 cents, or 0.7 per cent, to $88.73 per barrel earlier today. The US crude futures fell 54 cents, or 0.7 per cent, to $81.59. Both benchmarks rebounded in the prior two sessions amid volatile trade after reaching nine-month lows this week, Reuters reported.
Technical factors
The market was extremely oversold on technical charts.
“The formation of the ‘Inverted Hammer’ candle on the technical chart could be seen as a ray of hope for a reversal from the ongoing selling saga,” Sameet Chavan of Angel One said ahead of the opening bell.
“As far as levels are concerned, the unfilled gap of 16,750-16,650 is to be seen as the next potential support. While on the higher end, the 17,000-mark followed by 17,200 is likely to be seen as immediate resistance for the index,” he said.
