A rally on Dalal Street, after three back-to-back days of fall, surprised many on Monday morning. But it was in line with global rally, especially after a sharp upmove on Wall Street on Friday, as investors cheered a strong US jobs data, but slowing of wage prices. Another data showing ISM service index in US falling into contraction territory for the first time since May 2020 was taken as sign the US economy was slowing and it was time for the Fed to consider halting rate hikes.
At the time of writing this report, the BSE Sensex had climbed over 800 points to reclaim the 60,000 mark. The NSE Nifty hit the 18,100 mark, with three of every four stocks on stock exchanges trading higher.
Here’re five factors that led to Monday’s steep rally.
Wall Street rally
Edward Moya of Senior Market Analyst, The Americas OANDA noted that US stocks initially rallied on Friday after the NFP report showed the labour market remains strong and as wage price spiral risks are easing. The Fed will stay on their tightening course but risks of more hikes in the Spring are easing as optimism is growing that wage pressures will continue to drop, he noted.
“The initial NFP driven stock market rally was faded but it quickly got its mojo back after the ISM service index fell into contraction territory for the first time since May 2020. The December ISM Services report was very weak and supports the idea that service part of the economy is finally breaking,” Moya noted.
“The Fed will take this NFP report as the unemployment rate fell, but lower wage growth appears to be happening. Ideally they’d be happy if wages eased further and the unemployment did not surge, but that probably won’t happen throughout the rest of the year. This economy is still recession bound and the unemployment rate should start to rise fairly soon,” Moya added.
Asian markets mirror gains
Asian markets gained up to 2.5 per cent in morning trade. Korea’s Kospi index was up 2.5 per cent; Taiwan’s key index rose 2.2 per cent, Hong Kong’s Hang Seng was up 1.6 per cent while China’s Shanghai Composite added 0.5 per cent in early trade. Japan markets were closed for the day.
“The US economic data released on Friday is significant from the global market perspective. All data point to a strong but cooling US economy which indicates the rising possibility of a soft landing for the US economy, said VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services.
Dollar takes a back seat
The US dollar index fell 0.24 per cent to 103.63, with investors dialling back bets on Fed rate hikes after data on Friday showed a jump in the US workforce and easing wage growth, combined with a sharp fall in service-sector activity. Across Asia, currencies strengthened, with the South Korean won gaining 1.9 per cent to hit its highest level since early June. Indonesia’s rupiah added 0.4 per cent, while Malaysia’s ringgit and the Philippines’ peso strengthened 0.7 per cent.
Rupee was no exception. The domestic currency appreciated 33 paise to 82.33 against the dollar. A strong rupee makes domestic stocks attractive to foreign investors.
Q3 earnings season
Markets were optimistic about the December quarter earnings season, which would kick off with TCS results today. Shares of Tata Consultancy Services (TCS) climbed 3 per cent in Monday’s trade and topped Rs 12 lakh crore in market capitalisation (m-cap), ahead of the IT major’s December quarter results. The stock rose 3.01 per cent to hit a high of Rs 3,308.95.
Reliance Securities expect the IT major to log a 15.3 per cent year-on-year (YoY) jump in net profit at Rs 11,261 crore compared with Rs 9,769 crore in the same quarter last year. Motilal Oswal Securities expects TCS’ bottom line to grow 14.4 per cent at Rs 11,220 crore. Dolat Capital Market pegs profit at Rs 11,012 crore, up 12.7 per cent YoY. Nuvama sees profit at Rs 11,377 crore, up 16.5 per cent YoY or 9.1 per cent QoQ.
US futures
S&P 500 futures were trading 0.2 per cent higher while Nasdaq futures were trading 0.3 per cent higher. EUROSTOXX 50 futures were up 0.6 per cent, while FTSE futures added 0.3 per cent, hinting at positive start for world markets later in the day.
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