Indian stock market recorded a sharp rebound from its early morning lows, with Sensex recovering nearly 740 points and Nifty jumping above the 23,450-mark as falling oil prices, rising rupee and other factors boosted investor sentiment on a volatile Sensex expiry day.
Sensex rose around 200 points to 74,544 while Nifty 50 traded nearly 57 points higher at 23,462, as seen at around 12 pm on Thursday. This came as India VIX sharply plunged from morning highs to slip into the red at 16.18.
Zomato-parent Eternal shares jumped nearly 3% to lead gains on Sensex, while Titan shares surged nearly 2% to follow. Maruti Suzuki, ICICI Bank, ITC and M&M shares meanwhile gained more than 1% each. On the other hand, Trent shares fell over 2% to lead losses.
Broader markets also rebounded sharply, with Nifty Midcap 100 and Nifty Smallcap 100 indices gaining around 1% each. Sectorally, Nifty Consumer Durables jumped nearly 2% while Nifty IT and Nifty Metal continued to remain in the red. Around 1,989 stocks advanced on NSE, while 1,137 declined and 123 remained unchanged.
“The frontline indices recovered from a significant downwards gap to test their previous day's highs. This is the third consecutive session markets have witnessed a recovery from the 23,250-23,150 zone,” said SBI Securities. It highlighted that banking stocks continue to relatively outperform ahead of the RBI monetary policy scheduled tomorrow.
Here are the key factors that may be supporting the market recovery:
1) India may scrap capital gains tax on FPI investments in govt securities
Indian government in planning to scrap capital gains tax on investments in government securities by foreign portfolio investors (FPIs), a move which will likely shore up overseas capital inflows into the country, The Economic Times reported citing people familiar with the matter.
The Cabinet, in a meeting chaired by Prime Minister Narendra Modi on Wednesday, approved the promulgation of an ordinance to amend the Income Tax Act to pave the way for this exemption, sources further told The Economic Times, adding that a notification is expected soon after the President gives her assent to the ordinance.
Foreign investors have been bearish on Indian markets recently. FIIs net sold Indian shares worth Rs 5,617 crore on Wednesday, according to data on NSE. They have net sold Indian equities worth more than Rs 39,625 crore in just four consecutive sessions.
2) Middle East tensions de-escalation hopes
Israel and Lebanon agreed Wednesday to renew their fragile ceasefire and create a number of "pilot" security zones inside Lebanon from which Hezbollah militants would be banned. Trump meanwhile remained inconclusive about the timeline for Iran and the US finally agreeing to their much-awaited peace deal.
Despite the rising hopes for peace in the Middle East, caution is warranted. Iran struck Kuwait's airport and US launched retaliatory strikes near the Strait of Hormuz, overshadowing a Israel-Lebanon ceasefire.
Indian rupee gained 7 paise to 95.69 against US dollar in early trade. “The higher oil prices have limited the rupee’s recent recovery and kept market sentiment cautious ahead of key domestic triggers,” said Jateen Trivedi, VP Research Analyst - Commodity and Currency, LKP Securities.
“The next major reaction in the currency market is likely to come from the RBI policy decision on 5 June, where participants will closely watch the central bank’s stance on inflation, liquidity, and currency stability. For the near term, rupee is expected to trade within a range of 95.25–96.25,” he added.
Oil prices declined as a result of the rising hopes for Middle East tensions de-escalating soon. Brent crude futures fell around 1% to trade below $97 per barrel, while WTI Crude futures also declined around 1% to $95 per barrel.
Several tankers have reportedly been able to pass through the Strait of Hormuz in recent weeks However, traffic through the strait remains a fraction of pre-war levels.
5) Bond yields cool down slightly
US Treasury yields fell slightly amid latest geopolitical developments. The yield on benchmark US 10-year notes fell to 4.481% while the 30-year bond yield fell to 4.982%. The 2-year note yield, which typically moves in step with interest rate expectations for the Federal Reserve, declined to 4.07%. Falling bond yields typically make bonds less attractive to investors, which in turn can lead to some uptrend in equity markets.
What lies ahead?
SBI Securities now sees Nifty finding support near 23,300-23,320 on the downside. On the upside, it sees the benchmark index finding resistance near 23,550-23,570. In the event of a surge above 23,570, the index can experience an extension of the rally towards 23,770, it added.
For Sensex, SBI Securities sees support at 74,000 on the downside while resistance is placed at 74,800 on the upside.
