Sensex rises 600 points, Nifty closes at 11,662: Five factors behind the rally

Domestic benchmark indices ended higher on Tuesday amid positive global equities. Extending gains for the fourth straight session, Sensex ended 600 points higher to 39,574 and Nifty gained 159 points to settle at 11,662. Yesterday, the 30-share benchmark Sensex ended 276 points higher to 38,973 and Nifty gained by 86 points to 11,503.

Banking and financial stocks rallied and traded as the top gainers today, followed by heavy buying in realty and media index, while metals, pharma and FMCG ended marginally bearish.

All 30 Sensex constituents were trading in the green. Index heavyweight HDFC led the rally on the Sensex chart, followed by Asian Paints, IndusInd Bank, HDFC Bank, Mahindra and Mahindra and State Bank of India.

Ajit Mishra, VP - Research, Religare Broking said,"The bulls continued to dominate as the benchmark indices registered strong gains led by supportive global cues. The broader markets underperformed for the second day in a row but both Midcap and Smallcap managed to end higher by 0.5% each."

Equity market indices ended majorly bullish largely on the following factors:

Q2 earnings season

 IT major Tata Consultancy Services is set to begin the Q2 results season on 7 October followed by Wipro, Infosys and HCL Tech on October 13, 14 and 16, respectively. Investors, as well as brokerages, are betting big on IT firms ahead of the results for the September-ended quarter.

There was buying pressure seen in the latter half in IT and banking stocks today, as investors turned buoyed with companies providing their positive quarterly updates and sales figures, ahead of the Q2 earnings results.  With demand normalising to pre-COVID-19 levels on the back of relaxations in virus indices lockdown, many market analysts are expecting margins  to be resilient

Brokerage CLSA rated major names in the information technology sector bullish and also advised investors to focus on quality stocks with a strong order book.

Vinod Nair, Head of Research at Geojit Financial Services said,"Market is booming to a new level in anticipation of better Q2FY21 results, clear improvement in domestic economic data and uptick in the global market. The IT and Banking sector will be in focus, in the coming weeks, in expectation of real benefit in Q2 result. Banks are showing healthy deposits & advance growth, with signs of recovery in growth to pre-Covid level, while positive SC verdict is also expected next week regarding moratorium."

PMI data

Amid relaxations in Covid-19 restrictions, Indian service sector output broadly stabilised in September but remained in the contraction zone (below 50)

As per data released by IHS Markit, PMI (Purchasing Managers' Index) came in at 49.8 from 41.8 in August and 48.7 in September 2019. The seasonally adjusted India Services Business Activity Index rose for the fifth straight month in September, indicating that service sector activity has recovered to pre-COVID levels.

"The relaxation of lockdown rules in India helped the service sector move towards recovery in September. Participants of the PMI survey signalled broadly stable business activity and a much softer decline in new work intakes," said Pollyanna De Lima, Economics Associate Director at IHS Markit.

Moreover, the Composite PMI Output Index rose from 46.0 in August to 54.6 in September, signalling a marked rate of activity growth across the private sector economy.

MPC meet outcome

Markets also turned bullish ahead of the Monetary Policy Committee (MPC) meet to be held from October 7 to October 9, 2020. It was earlier scheduled from September 29 to October 1. The Reserve Bank of India on Tuesday said that it will also announce the outcome of its bi-monthly policy rates on October 9.

RBI is expected to keep key interest rates unchanged to maintain low inflation amid the pandemic induced recession. Investors will also be keenly awaiting the central bank's guidance on how the economy is performing amid the coronavirus pandemic.

The MPC had been given the mandate to maintain annual inflation at 4 percent until March 31, 2021, with an upper tolerance of 6 percent and a lower tolerance of 2 per cent.

"The RBI has announced the new dates for the MPC meet and the outcome will be out on October 9. We thus expect the rate-sensitive pack to remain volatile in the near future," said Ajit Mishra, VP - Research, Religare Broking.

Positive global cues

Asia-Pacific stocks were mostly higher in morning trade as the Reserve Bank of Australia (RBA) kept its current policy settings on hold

In Wall Street, stocks closed higher yesterday, as focus shifted on the possibility of a fiscal stimulus package. Sentiments of the global markets were after analysts suggested that the much expected additional stimulus aid from the US may come as soon as next week. Investors turned buoyed worldwide following news that Democrats and Republican lawmakers were continuing their work towards a deal on coronavirus relief spending. On the speech front, the US Fed Chairman is scheduled to speak today.

The market further cheered following reports that doctors confirmed that President Trump would be discharged on Monday evening. He had contracted Covid-19, along with a number of his staff last week.

"Anticipation of US President Trump recovering from COVID and of Democrats and Republicans reaching a consensus on a fiscal stimulus package seems to be buoying risk sentiment," said Abhishek Goenka, Founder and CEO, IFA Global.

Technical outlook

In today's session, Nifty has breached 11,600-11,620 levels to continue with its bullish momentum and closed at 11,662.

On closing today, Manish Hathiramani, proprietary index trader and technical analyst, Deen Dayal Investments said, "The Nifty closed in stellar form. It also managed to cross its intermediate high of 11618 which was made on 16 September 2020. We should now achieve 11800 which is the next resistance level. The trend and sentiments are bullish and we could even achieve 12000 once we get past 11800."    

Motilal Oswal Financial Services said in its note," In Sept, Nifty concluded the month at 11073 levels, with loss of 1.23% over its August month's close. Last week, the index bounced by 3.32% in the truncated week and formed a positive candle on a weekly scale.

The report said,"Currently, Nifty is giving breakout from Falling Trend line on the daily chart and a sustainable move above 11500 may result in a directional move towards 11750 - 11800 zone. Momentum oscillator RSI turned northward on both daily and weekly scale, indicating sideways to positive momentum in coming days. At the current juncture, immediate support for Nifty is placed at 11333 then 11111 levels, while resistance can be seen around 11790 levels."

The report added, "HFY21 (Apr-Sep'20) has turned out to be the best first half for the Nifty over the last decade, of course, aided by the low base, post-correction in Mar'20."

BoB in its weekly wrap said,"Global manufacturing PMIs and US consumer confidence supported higher global yields. Barring Nikkei and Shanghai Comp (flat), other global indices ended higher this week on expectation of the US fiscal package. Sensex (3.5%) surged the most in a truncated week, as the government announced unlock 5.0 guidelines."

Stocks in news: Adani Ports, PVR, Infibeam Avenues, Britannia, Tata Motors

Share Market News Live: Sensex rises 350 points, Nifty at 11,610; HDFC twins, Bajaj Finance top gainers