The Indian stock market extended gains on Friday, with Sensex and Nifty rising more than 0.3% each on the back of easing Middle East conflict, lower expectations of Fed rate hikes, and other key factors.
Sensex gained around 262 points to close at 77,764, while Nifty 50 rose more than 95 points to end the session above 24,270 during Friday's trading session. The sharp gains added nearly Rs 44,155 crore to the total market capitalisation of all companies listed on BSE, pulling it up to Rs 480 lakh crore.
IT stocks continued to record a strong surge, with HCL Tech shares rallying around 6% to lead gains on the Sensex. Tech Mahindra, Sun Pharma, Bharti Airtel, Bajaj Finserv and UltraTech Cement shares jumped around 2% each to follow. Bucking the trend, Axis Bank and M&M shares fell more than 1% each.
Broader markets, however, sharply underperformed benchmarks, with the Nifty Midcap 100 index slipping into the red while the Nifty Smallcap 100 index rose only marginally. This came as India VIX, which measures market volatility, dropped around 4% to 11.80.
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Here are the key factors boosting market sentiment today:
1) Fed rate hike worries cool down
US job growth slowed sharply in June and payroll gains for the prior two months were revised lower, data released on Thursday showed, pointing to a cooling labour market and prompting financial markets to reduce expectations for a near-term rate hike. The unemployment rate dropped to 4.2% last month from 4.3% in May as workers left the labour force, pushing the participation rate to the lowest level in more than five years.
"The figures challenged the narrative that the Fed remains on track to hike in the second half of this year," Reuters quoted Westpac analysts as saying in a research report. The tepid jobs data doused traders' expectations of an imminent rate hike and raised the odds that the Fed will keep rates on hold until October.
Traders are now pricing in a 46.8% probability that the U.S. central bank will keep rates steady at its meeting on September 15 to 16, compared to a 35.8% chance a day earlier, according to the CME Group's FedWatch tool.
2) Rupee closes higher
Rupee rose 13 paise to 95.22 against the US dollar in early trade. This came on the back of a weaker US dollar after the tepid jobs report. The dollar index, which measures the greenback against a basket of currencies, was 0.2% lower at 100.77 after a 0.5% decline on Thursday. It is on course for its biggest weekly drop since early April.
“Improved global sentiment and a softer dollar helped the domestic currency recover from recent weakness. However, traders remain cautious ahead of the weekend as developments in the US-Iran and Russia-Ukraine conflicts could influence global risk appetite when markets reopen. Attention will also shift to the Federal Reserve meeting minutes next week, which may provide further clarity on the US interest rate outlook and direction for the dollar. Technically, the rupee is expected to trade in the 95.00–95.45 range, with global developments and foreign fund flows remaining the key drivers,” said Jateen Trivedi, VP Research Analyst of Commodity and Currency at LKP Securities.
3) FII outflows taper off
Foreign investors remained net sellers of Indian equities, net selling shares worth nearly Rs 312 crore on Thursday, according to provisional data on the NSE. This is marginal when compared to the massive FII outflows seen earlier this year during the raging war in the Middle East.
4) Heavy buying in IT stocks
The overall market optimism was boosted by strong buying in heavyweight IT stocks like HCL Tech, TCS and Infosys. The IT stocks are extending sharp gains today, after tumbling to fresh 52-week lows earlier this week.
IT companies derive a significant portion of their revenue from the North American market. Rate hikes or a spike in inflation in the US can weigh on discretionary spending, which, in turn, may affect the sector's growth prospects. Hence, lower expectations of Fed rate hikes, along with low valuations, are boosting the IT stocks.
5) Positive global cues
Dalal Street accompanied global peers in sharp gains today. South Korea’s Kospi jumped more than 5%, while Japan’s Nikkei gained over 1% on Friday. Hong Kong’s Hang Seng and China’s Shanghai Composite also closed in the green.
On Wall Street, the Dow Jones Industrial Average rose more than 1% to post a record closing high on Thursday and a fourth straight week of gains. European markets also closed in the deep green yesterday.
6) Iran-US peace efforts
“No news is good news” is what can summarise today’s market scenario. The peace efforts in the Middle East are holding well so far, and no escalation has been reported yet. This comes after Iran and the US held peace talks in Doha earlier this week.
Iran is now preparing for the days-long funeral for the late Supreme Leader Ayatollah Ali Khamenei, whose death early in March had sparked the raging war. US President Donald Trump, meanwhile, has claimed that Iran has conceded to nearly all American conditions in the ongoing diplomatic negotiations while emphasising that the primary objective of the discussions remains preventing Tehran from obtaining nuclear weapons.
7) Oil prices
Oil prices inched up slightly to $72 per barrel, but continue to hover near the pre-war levels as the peace efforts continue to hold well so far. Kuwait's oil production rose sharply to 1.65 million barrels per day in June from 580,000 bpd in May, Reuters reported, citing sources on Thursday, as the OPEC member boosted exports following the US-Iran interim peace agreement.
Also, at least five supertankers carrying around 10 million barrels of Saudi oil have exited the Strait of Hormuz, with Saudi Aramco switching to spot pricing to speed sales in Asia, Reuters further reported.
What lies ahead?
India’s outperformance continues, aided partly by the weakness in KOSPI and the general weakness in the chip trade, said VK Vijayakumar, Chief Investment Strategist at Geojit Investments. He added that the continuing tapering of the FII outflows is another significant factor supporting the market. But the rally will not sustain unless it is supported by fundamental factors.
“The crash in crude to pre-war level is the strongest macro support to the economy and the market. Purely from the market perspective, a strong fundamental support is the gaining strength of the banking stocks. Latest news regarding the FCNR (B) scheme is that it is receiving a good response, particularly from West Asia, where HNIs are eager to get good and safe returns in the context of the uncertainty caused by the war,” according to the analyst.
Leading banks are offering attractive leverage on deposits and mobilising big money, Vijayalkumar said, noting that there are reports that this scheme may succeed in mobilising up to $60 billion. Since there is impressive credit growth in the economy, these FCNR (B) deposits will come in handy for the deposit-starved leading banks to significantly scale up their lending. “In brief, banking stocks have the fundamental strength to sustain the rally in Bank Nifty. The IT stocks are witnessing an uptrend triggered by low valuations. But the sector has no fundamental strength to sustain the rally,” he added.
Technical view on Nifty
Nifty has registered a consolidation breakout on the daily chart, indicating improving market sentiment, said Rupak De, Senior Technical Analyst at LKP Securities. “Additionally, the index continues to sustain above the crucial 50-day EMA, reinforcing the positive short-term trend. The RSI has also witnessed a bullish crossover, adding further strength to the momentum. Going forward, Nifty appears well-positioned to advance towards 24,500 and potentially higher. On the downside, immediate support is placed at 24,200, followed by the stronger support zone around 24,000,” he added.
(With inputs from agencies)
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)
