Sensex jumps 1,100 pts from day’s low, Nifty closes above 22,750 as D-St rebounds after 4-day losses. Is this relief rally sustainable?

The Indian stock market rebounded on Monday, with Sensex and Nifty staging a sharp recovery of nearly 2% from the early losses and snapping a four-day losing streak that wiped off massive sums of investor wealth.

Sensex rose over 450 points to close at 73,607, recovering nearly 1,100 points after hitting the day’s low at 72,515. Nifty gained over 150 points to close above the 22,750 level, after having dropped below 22,400 earlier in the day.

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Adani Ports, Eternal and Kotak Mahindra Bank shares jumped nearly 3% each, while Trent, Tata Steel, Asian Paints, IndiGo, ITC, Bajaj Finserv and Reliance Industries shares gained up to 2% each. Bucking the trend, Bajaj Finance and HDFC Bank shares fell nearly 1% each.

Broader markets also took a sigh of relief following a significant crash on Friday, with Nifty Midcap 100 and Nifty Smallcap 100 indices soaring more than 1% each. However, India VIX, which reflects market volatility, rose nearly 2% to 17.14.

What lies ahead for Dalal Street?

While today’s gains following the sharp drop last week are bringing some much-needed relief for investors on Dalal Street, analysts advise caution. Despite the slight cooling in Brent crude price to below $115, the price continues to be too high and, and therefore, will constrain any rally from the low level of 22,600 which Nifty touched last Friday, said V K Vijayakumar, Chief Investment Strategist, Geojit Investments. He however said that investors should not bother about the index levels in the near-term. Their focus should be on the value buys that have emerged from this correction, even while exercising caution about the macro fallout of the high crude prices.

“An important lesson from market experience is that when valuations reach very high levels, a reversion to mean is inevitable. This was what happened in mid-and small-caps last week, particularly on Friday. The crash in the broader market was mainly due to the forced liquidation of the margin funded trade. The broader market continues to be over-valued, but this sharp correction will open up opportunities in high-growth segments in the broader market,” the analyst said.

The weakening of the AI trade is positive for India, he noted, highlighting that in September and October, so far, the capital flight from South Korea and Taiwan from FPI selling is more than the capital outflow from India. This is an important trend, according to the analyst.

"Indian equities recovered from early losses, supported by value buying and strength in metals, power and healthcare. However, elevated crude prices, geopolitical uncertainty and caution ahead of the Fed, ECB and BoJ policy decisions kept sentiment measured. Mid- and small-caps also witnessed some recovery after last week’s sharp correction, although investors remained selective, favouring earnings visibility and valuation comfort. Early-bird quarterly results suggest a commodity-led earnings boost in power generation, metals and refining, but high energy costs and interest rates are forecast to moderate overall corporates growth in the coming quarters,” said Vinod Nair, Head of Research, Geojit Investments Limited.

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Technical view on Nifty

Nifty’s close back below the 20 DMA on Friday is disappointing, with VIX’s sharp rise cautioning towards a plunge that could aim for 21,600, warned Anand James, Chief Market Strategist, Geojit Investments.

He however noted that the long lower wick of Friday points to recovery attempts. “We will look for a push above 22,690 to confirm strength for the day. Alternatively, inability to float above 22,460 could be taken as resumption of downsides,” he added.

Disclaimer: This article has been written by Debaroti Adhikary, who is not a SEBI-registered Research Analyst or an Investment Adviser. Debaroti Adhikary and his/her ‘relative(s)’ (as defined under Section 2(77) of the Companies Act, 2013) do not hold any financial interest in the companies mentioned in this article as of the date of publication. The views/recommendations mentioned in this article, wherever applicable, are those of the respective SEBI-registered Research Analyst/brokerage and have been reproduced/reported with due attribution. They should not be construed as the views or recommendations of The Economic Times Digital or the journalist. Readers are advised to consider the original research report and make their investment decisions based on their own assessment. Brokerage disclaimers here.