Five reasons why Sensex rallied over 300 points in Monday’s trade

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NEW DELHI: After a tepid showing over the past two weeks when the benchmark indices declined up to 3 per cent, the equity marketmade a strong comeback on Monday.

The domestic equity indices blazed through key support levels, rallying on global cues.

The S&P BSE benchmark Sensex surged as much as 339 points, or 1.4 per cent, while the Nifty50 reclaimed its crucial support level of 7,800, gaining 1.2 per cent.

Here are five reasons behind its surge:

1) June rate hike out of picture: Weak US payroll data in the US has ignited hopes that the chances of a June rate hike by the US Federal Reserve have reduced now.

Equity markets the world over had been trading skittish over the past two weeks after key US Fed officials came out to state their preference for a June rate hike. But after the US economy created jobs at the slowest pace in seven months, that seems out of question now.

“The Fed is looking at two rate hikes this year and that could send out a message that a hike in September or even before that seems likely, although we are ruling out a June hike for now,” said Nizam Idris, Head of Strategy, Macquarie Bank.

2) Signs of stability in China: Stable data points from China, Asia’s largest economy, helped soothe investor anxiety. The dragon’s forex reserve grew for the second straight month, an event that last occurred in 2014, to $3.22 trillion indicating that capital outflow from the country is slowing.

Trade data showed China’s exports grew 4.1 per cent (YoY) in yuan terms thanks largely to the depreciation of the yuan, but fell 1.8 per cent in dollar terms. Imports declined 11 per cent, but trends indicated reduced volatility in key macro indicators as the Asian giant adjusts to a 6.5 per cent growth trajectory.

3) Q4 earnings make a comeback: An ET Intelligence report showed 250 companies – excluding banks, finance firms and oil & gas stocks – have reported a PAT growth of 6 per cent so far.

Companies such as InfosysBSE 0.70 %, Hero MotoCorpBSE 1.87 %, UltraTechBSE 1.77 %, Eicher Motors, Marico and DaburBSE 1.23 % have posted good Q4 numbers, while Maruti SuzukiBSE 0.58 %, Adani Ports, HCL TechBSE -0.01 % and TCS closed the quarter with lower-than-expected earnings.

“If you look at it, what has happened this quarter is that some of the companies have surprised the Street on the positive side and they have been rewarded handsomely.

If you look at Emami or some of the other FMCG names and some banks for that matter, private lenders especially, have been doing extremely well,” said Harendar Kumar, MD, Institutional Equities, Elara Capital.

4) Crude oil continues to provide support: Crude oil prices surged as much 2.5 per cent in morning trade after record demand in China and wildfire in the Canadian oilfields supported the bulls in the market.

China’s crude oil imports surged 7.1 per cent in April, adding to the record imports in March. Wildfire in Canada that made two-thirds of the country’s oil supplies go offline also propped up prices.

Saudi Arabia, the largest producer of hydrocarbons in the world, shook up the market after it fired its long-standing petroleum minister Ali al-Naimi in favour of Saudi Aramco’s chairman Khalid-al Falih last night. The added bout of volatility is seen by traders as bullish for the oil market in the near term.

5) Nifty50 breaks above 7,800: The Nifty50 scaled its crucial psychological level of 7,800. If it manages to close above this level, it will give a fresh set of legs to the bulls. But lack of momentum will limit the upside as the index might come under pressure at higher levels.

However, a close above 7,800 will give the much-needed confidence to the traders. The 7,700 level will remain a key support for the index.

“For a short-term trend reversal, the confirmation will come only if the market sustains above the 7,800 mark. And a move above 8,000 will help the market resume its medium-term upward trend,” Rohit Gadia, Founder & CEO, CapitalVia Global Research, told ETMarkets.com.

“The Nifty50 bounced back and closed slightly above the 7,700 mark on Friday, where we saw a gap on the daily chart last month. A gap being the imbalance between demand and supply, it offers an important clue regarding support and resistance,” he said.