Sensex stages a 5,400-point recovery: Decoding the sharp rally on Dalal Street

In the biggest intra day recovery ever (in term of points), Sensex gained 5,431 points from its intra-day low of 29,388 in afternoon trade today. Nifty too zoomed 1,604 points from day's low of 8,555. Nifty, which hit the circuit breaker of 10% plunged 966 points to 8,625 in early trade. Similarly, Sensex plunged 3,090 points or 9.43% in early trade in line with rout in Asian and global markets.

After a 3,390 points fall intra day, Sensex closed 1,325 points or 4.04% higher at 34,103. Nifty too closed 365 points or 3.81% higher at 9,955 compared to the previous close of 9,590.

The smart recovery by Sensex and Nifty in a volatile market has surprised analysts and investors alike on the Dalal Street. Business Today looks at the factors, which seem to have led to the sharp rebound in domestic indices in afternoon session.

Bargain hunting

With the stock market weakness largely imported from indices of other countries, stocks have staged a smart rebound with bluechips leading the charge. This comes after Nifty hit 10% circuit filter today, probably the bottom of the market.

On Sensex,  stocks of SBI, HDFC, Sun Pharma, Tata Steel, ICICI Bank, Bharti Airtel , Axis Bank, NTPC,  RIL and NTPC were trading higher. Of 30 Sensex stocks, 25 were trading in the green. This is in sharp contrast to early trading today when all Sensex stocks were deep in the red.

Vikas Jain, Senior Research Analyst at Reliance Securities said, "Markets opened lower on back of weak global cues by hitting lower circuit, thereafter bargain hunting has pulled up the index from lower levels. We believe the volatility will continue for another few days. Currently, the market has made a bottom near 8,555 levels. This is a strong support for the Nifty 50 index from current level."

Market trading halted for 45 minutes after Nifty slides 10%

Sebi's assurance to Dalal Street

After Nifty hit 10% circuit breaker for the first time in 12 years, market regulator Securities and Exchange Board of India (SEBI) issued a statement saying, "SEBI  and  Stock  Exchanges  have  a  robust  risk  management  framework  in  place which automatically gets triggered in response to movements in the indices (BSE Sensex  and  NSE  Nifty) as well as individual  stocks both in cash and derivatives market."

On the market crash today, the market regulator said, "SEBI and Stock Exchanges are prepared to take suitable actions as may be required."

Sebi's assurance to the market appeared to calm nerves of traders and investors alike.

US Futures in green

US markets futures were indicating a higher opening today a day after indices in the world's most developed nation entered bear territory. US Federal Reserve announced a $1.5 trillion stimulus yesterday to prevent unusual disruptions in the market.

The move seemed to be working in favour of bulls who have been attempting a bounce-back in market for last 10 days now. Dow Jones has slumped 21% since March 4 when the US economy and markets started to take into account the effect of coronavirus on global economic growth.

Viram Shah, Co-Founder and CEO, Vested Finance said, "The recovery could be based on the fact that Dow Futures which were trading deep in the negative recovered all their losses and in fact started trading in the green. This sharp recovery could suggest that the global markets are set to recover. Additionally, domestic investors have been lapping up companies that are available at bargain prices."

SEBI calms nerves after market crash, assures risk management

Fall in crude prices

Brent crude oil prices slid further to $32.50 per barrel in trade today as global markets sank after investors fretted over evaporating demand from the coronavirus pandemic and a production ramp-up by top producers.

"Crude prices crashed further and a crash of such magnitude would bode well for India due to our heavy reliance on imported crude," said Viram Shah. India imports nearly 84% of its crude oil requirement which leads to massive outflow of foreign currency.

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