Explained: Why is market bouncing back? Sensex recovers over 700 points from day’s low; Nifty back above 23,400

After Sensex and Nifty crashed 1% on Friday morning, the Indian benchmark indices sharply recovered most of their losses to trade with only marginal cuts in the afternoon as oil prices and bond yields cooled off following a report on efforts to reach a temporary deal to resume traffic through the Strait of Hormuz.

Sensex, which had dropped around 740 points in the morning, recovered 730 points to trade with marginal losses at 74,160, as seen at around 2.50 pm. Nifty 50, which had fallen below 23,250, rebounded 217 points to trade near 23,450 in the afternoon.

Why is market rebounding?


Foreign ministers of Gulf nations are planning to meet their Iranian counterpart in a push by Oman and Iran to secure buy-in for a deal that will temporarily manage shipping through the Strait of Hormuz, as regional states seek a pathway to ease hostilities over the critical waterway, the Financial Times reported.

This meeting would mark the first such initiative between the top diplomats from the six-member Gulf Cooperation Council and a senior Iranian official since the conflict between the US and Iran began late in February. The meeting is scheduled to be held on Monday in Salalah, the report added, citing sources.

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Possibility of a deal to ensure shipments through the Strait of Hormuz eased supply worries, leading to a sharp fall in oil prices. Brent crude futures declined nearly 3% to trade below $105 per barrel, after trading as high as $109 per barrel in the morning.

Bond yields also cooled down slightly, after soaring to multi-year highs. The benchmark 10-year US Treasury yield slightly eased to 4.94%. Traders are now pricing in a 67% chance of a rate hike at the central bank's policy meeting next week, up from 62% before the data, ⁠according to the CME FedWatch Tool.

What lies ahead?

Analysts had noted that if the high crude oil price sustains or spikes further, the impact on India’s GDP growth and consequently on corporate earnings will not be insignificant. The rise in US bond yields is an equally strong headwind, according to V K Vijayakumar, Chief Investment Strategist at Geojit Investments.

“The booming Indian IPO market is the centre of attraction of investors now. The heavy oversubscription and attractive listing gains have drawn millions of investors into the IPO market. This has sucked off big money from the secondary market. There is a lot of excitement over the NSE IPO scheduled to open for the public on 17th of this month. All things considered, investors have to be cautious in this challenging environment,” he added.

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Technical view on Nifty

While 23,260-23,000 appeared to be next in line as the downside objectives, Anand James, Chief Market Strategist at Geojit Investments, had noted that yesterday’s long lower wick suggests that a base formation is in play, even though recovery attempts have all been feeble.

“We will however, retain the upside marker at 23,520,” he added.

(With inputs from agencies)
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)