scorecardresearchMarket Wrap: 5 factors fuelling the rally for the past 4 trading sessions

Market Wrap: 5 factors fuelling the rally for the past 4 trading sessions

Updated: 20 Jul 2022, 04:35 PM IST
TL;DR.

  • Strong US corporate earnings boosted sentiment while reports that Russian gas supply to Europe may resume also influenced the mood.

Sensex ended 630 points, or 1.15%, higher at 55,397.53 while the Nifty settled at 16,520.85, up 180 points, or 1.10%. Photo: Pixabay

Sensex ended 630 points, or 1.15%, higher at 55,397.53 while the Nifty settled at 16,520.85, up 180 points, or 1.10%. Photo: Pixabay

Key equity indices the Sensex and the Nifty clocked gains for the fourth consecutive session on July 20 amid positive global cues, the dollar's weakness against its peers and the reduction of windfall tax by the government on the petroleum export.

Strong US corporate earnings boosted sentiment while reports that Russian gas supply to Europe may resume also influenced the mood.

Recent macroeconomic data in the US fuelled hopes that the US Fed may rethink its aggressive rate hike plans and the world's largest economy may not see a sticky recession. The dollar traded near two-week lows amid expectations of a lower US rate hike.

Sensex ended 630 points, or 1.15%, higher at 55,397.53 while the Nifty settled at 16,520.85, up 180 points, or 1.10%.

BSE Midcap index rose 0.25% while the Smallcap index climbed 0.42%. Among the sectoral indices, telecom, utilities, auto, power and realty indices ended in the red while the IT index jumped 2.6%.

"Indian stocks led a steady climb as a result of encouraging signals from both domestic and international markets. Reduced export duty and windfall taxes improved the mood of oil producers. Strong quarterly results in the US market boosted the rally, while the European market rose as worries over Europe's energy supply eased. If sustained buying from FIIs prevails, it will provide a cushion to the upward rally in the domestic market," said Vinod Nair, Head of Research at Geojit Financial Services.

Brent Crude traded near the $105 a barrel mark while the rupee slipped 4 paise to close at 79.99 per dollar.

Here're 5 factors that appear to have boosted market sentiment

1. Positive global cues: Positive global cues influenced the mood of the market. Sentiment improved after the recent US retail sales data and June quarter earnings came better than expected. Investors now hope that the US Fed will consider the fresh macroeconomic numbers before deciding on the rate hikes.

2. Cut in windfall tax on petroleum export: The government announced a cut in windfall tax on petroleum exports which also influenced sentiment. Analysts said the cuts in duties on exports of petroleum will be a major boost for the sector.

"The announcement impacts markets on a positive note. The move is definitely positive for companies like RIL, ONGC and Oil India as the decline in windfall tax would mean better and more sustainable margins. These companies were clear beneficiaries of high oil prices, but the recent correction in oil prices coupled with one of the highest windfall taxes globally could have dented profitability," said Rohit Khatri, AVP-Fundamental Research, Religare Broking.

"We believe the timing of the government to announce it just three weeks after imposing the windfall tax clearly showcases the path ahead if oil prices remain stable. Moreover, this move would also help get back investor confidence in these stocks," Khatri added.

3. FPI selling abates: Foreign portfolio investors (FPIs) have been selling Indian stocks since October 2021 but the selling now seems to have slowed slightly. Analysts now feel FPI selling has bottomed out. The biggest reason behind the FPI selling was aggressive rate hikes by the US and a stronger dollar. As the dollar has cooled off and talks of rate hikes have moderated, FPIs may start buying Indian equities again, experts said.

4. IT stocks back in focus: IT stocks have been underperforming of late amid concerns of a recession in the US and pressure on demand. However, fresh corrections in IT stocks have made their valuation cheaper and investors are lapping them up now. Shares of Tech Mahindra, HCL Tech and TCS were the top three gainers of the Sensex index on July 20.

"After the recent correction, IT valuations are attractive. If the US succeeds in avoiding a recession, IT will bounce back smartly," said V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services

5. Technical factors: Nifty broke out upwards but closed near the intraday lows, suggesting profit taking at higher levels.

"While volume expansion is supportive of further up move, we will have to see whether the upward gap made by Nifty at 16,359 is filled or not in the next one-two days. Nifty could now remain in the 16,359-16,646 band for the near term," said Deepak Jasani, Head of Retail Research, HDFC Securities.

Mazhar Mohammad, Founder & Chief Market Strategist, Chartviewindia.in pointed out that even though Nifty50 witnessed a strong opening above the 200-day exponential moving average (EMA) with a gap up opening, bulls were somewhat disappointed as the intraday trading range remained in an extremely narrow range of 72 points.

Moreover, some of the momentum oscillators on the lower time frame charts reached the overbought zone.

"Technically, this can be the right area for bears to strike back. Therefore, in the next trading session, if the index slips below 16,490, the index can make an attempt to eventually bridge the day’s bullish gap present between 16,490 and 16,359. Contrary to this, if the bulls manage to keep the index afloat above 16,590 then the strength can expand toward 16,793. Therefore, for the time, we advise the intraday traders to short the index below 16,490 for a modest target of 16,390," said Mohammad.

Disclaimer: The views and recommendations made above are those of individual analysts not of MintGenie.

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First Published: 20 Jul 2022, 04:35 PM IST