Sensex, Nifty scale record closing highs: Five factors behind the rally

Market indices closed at record highs on Friday, amid positive global equities, with IT stocks, HDFC Bank and RIL leading the rally. Reversing from two days of fall, Sensex ended 689 points to 48,782 and Nifty gained by 209 points to 14,347. During the session, Sensex hit a new high of 48,854 and Nifty lit a lifetime high of 14,367. 

Tech Mahindra, Infosys, UltraTech Cement, Power Grid Corporation of India, NTPC, Sun Pharma, HCL technologies were among top gainers. On the other hand, IndusInd Bank, Bharti Airtel, State Bank of India (SBI), ITC, Housing Development Finance Corporation (HDFC) and Bajaj Finance were among the top laggards.

Nirali Shah, Senior Research Analyst, Samco Securities said,"Nifty now seems to be heading towards 14500 as it is lacking any significant negative events. On the downside 13950 has been established as an immediate support and a break of the same may trigger a profit-booking move in the short term. The market continues to remain overbought in the short-term and we maintain a cautiously bullish outlook unless the market breaks below 13950."

Here are the top five factors that led the rally today:

1.  GDP to contract by 7.7% in 2020-21

Benchmark indices reversed the trend and opened higher, after the Ministry of Statistics and Programme Implementation released the First Advance Estimates (FAE) which said India's gross domestic product (GDP) will contract by 7.7% in 2020-21, with Real GVA (Gross Valued added) shrinking by 7.2%. This was better than the projections by certain international agencies like the IMF and World Bank at (-) 10.3% and (-) 9.6%, respectively

The GDP contracted by a record 23.9% in the April-June quarter following a national lockdown to prevent the spread of the coronavirus. The contraction came down to 7.5% in the September quarter.

Several agencies also upgraded their estimates of India's economy, with the Reserve Bank of India recently projecting a 7.5% contraction in the year compared to its earlier estimate of a 9.5% decline.

The first advance estimates of GDP, that is the total value of all final goods and services produced within the country in one financial year, are released early to help officers in the Finance Ministry and other departments in framing the broad contours of Union Budget 2021-22. The second advance estimates of GDP will be released on February 26.

2. Q3 earnings expectations

Due to improved economic outlook, most sectors were performing well ahead of the start of October-December quarterly earnings season.  With the economy on recovery path, investors are bullish on IT, banks and auto stocks as several banks and auto majors announced their Q3 business updates. There was also heavy buying in the FMCG, IT and pharma stocks

The focus of market has shifted to third-quarter earnings, cheered by expectations of  TCS quarterly result which is to be released later in the day. As per market participants, the bullish rally is likely to extend to fresh all-time highs.

S Ranganathan, Head of Research at LKP Securities said, "IT & Auto stocks pulled their weight today ahead of TCS earnings as Bulls went berserk, lifting Indices by 1.5% buoyed by positive Global Cues. An array of high-quality Midcaps across sectors registered smart gains as mood remained buoyant through the day."

3. IT stocks rally

With TCS being the first to announce its financial performance, broader market indices made a stellar opening on Friday, led by gains in IT heavyweights.

S&P BSE Information Technology was the biggest sectoral gainer, up 3.55%

All sectoral indices ended on a higher note on the benchmarks. However, IT stocks were the top performers of the day.

Keshav Lahoti-Associate Equity Analyst, Angel Broking said,"Market closed up by 1.5% by recording a new lifetime high. Rally was led by IT index which was up by 3.6% on high expectation from TCS result, today to be announced by the company. All the sectors except Nifty PSU Bank and Nifty Metal closed in green.

Ajit Mishra, VP - Research, Religare Broking said," Markets will first react to TCS numbers in early trades on Monday. Besides earnings, global cues and updates on vaccine drive will also remain in focus. At present, the rotational buying across the sectors is helping the index to inch higher and we suggest aligning positions according to the trend. However, traders should avoid going overboard and keep a check on leveraged positions. Technically, the Nifty index has been trading in a rising broadening formation and the upper band of the pattern currently lies around 14,500, which may act as an immediate hurdle."

4. President Trump concedes election defeat

A day after supporters of Donald Trump invaded the U.S. Capitol, the outgoing US President Donald Trump said on Thursday that there will be an "orderly" transfer of power to Joe Biden on January 20.

Trump's remarks came minutes after a Joint Session of the US Congress formally certified the Electoral College victory of Biden as the next US President and Kamala Harris as the Vice President in the November 3 election. Biden, 78, and Harris, 56, are scheduled to be sworn in as the President and Vice President of the country on January 20.

Traders continued to focus on the possibility for additional financial aid after the Democratic party secured a slim majority in the Senate, giving it control of both congressional chambers. Presidential elections were held on November 3. Biden and Harris won a record number of popular votes, more than 80 million and earned as many as 306 Electoral College votes.

Following the news, US markets rose to all-time highs on Thursday, with technology shares witnessing huge buying sentiments as traders shifted their focus on the prospect of government spending being ramped up and Covid-19 vaccine rollout.

With Democrats gaining control of both house of Congress US stock market main indices Dow Jones Industrial, S&P 500 and tech-heavy Nasdaq Composite, set new highs. Dow gained 0.69 per cent, S&P500 surged 1.48 per cent and Nasdaq jumped 2.56 per cent.

Keshav Lahoti-Associate Equity Analyst, Angel Broking said,"Today, Indian shares opened on a bullish note tracking positive global cues as lawmakers certified President-elect Joe Biden's victory, giving Democrats control of the House, Senate and the White House. Global cues were supportive: Dow Futures and  Nasdaq Futures were up by 0.3% and 0.4% respectively, whereas FTSE was flat."

5. Global markets at record highs

Besides Wall Street, Asian stocks opened higher on Friday, with Japan hitting a three-decade high as investors looked beyond rising coronavirus cases and political unrest in the United States and bet on an economic recovery later in the year.

Nikkei gained close to 1.5% as its household spending rose 1.1% YoY in November. European markets closed higher after US Congress confirmed Joe Biden as the next President of the US. Eurozone economic sentiment also improved in December while inflation remained below 0.

Global markets were bouyed today amid rising oil prices. As the world economy reaches normalcy after the Covid Pandemic, Brent crude was trading near 11 months high at $53.16. This was after Saudi Arabia's decision to cut oil production by additional 1 million barrels a day till FY2021, which is more than the expected numbers.

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Share Market News Live: Sensex rises 300 points, Nifty at 14,150; Infosys, TCS, HCL Tech top gainers