Sensex jumps 1,000 points: Key factors behind stock market rally

No bad news is good news. It seems to be the case on Tuesday morning when most Asian markets rose in a relief rally after days of selling pressure. There were no negative cues from the US market as the Wall Street was shut overnight on account of a public holiday.

A surge in S&P500 futures helped the domestic and other Asian markets gain ground, with the BSE market capitalisation rising Rs 5.80 lakh crore to Rs 240.67 lakh crore from Rs 234.86 lakh crore on Monday.

The BSE barometer Sensex rose 934.23 points or 1.81 per cent to close at the 52,532 level, while the Nifty50 closed above the 15,600 mark to post their best session in three weeks.


"The recovery indicates that the current uncertainties of inflation and monetary policy tightening have been factored in. However, with the highly sensitive nature of the current equity market, even the slightest inconvenience can trigger volatility," Vinod Nair, Head of Research at Geojit Financial Services.

From the 30-share pack, Titan, SBI, TCS, HCL Technologies, Dr Reddy's, Tata Steel, Wipro, Infosys, ITC and Tech Mahindra were the major gainers. Only Nestle India ended marginally lower.

That said, investors were keenly awaiting the Federal Reserve Chair Jerome Powell's two days testimony to US lawmakers in Washington later this week.

For now, this is what fuelled rally on D-Street:

• Jump in S&P500 futures

S&P500 September futures were trading at 3,736 today, up 60.25 points or 1.64 per cent, hinting at a positive start for the US stocks after a long weekend. Asian markets too were trading higher, with Japan's Nikkei rallying 2.44 per cent, followed by Taiwan's TWSE (2.24 per cent), Hong Kong's Hang Seng (up 1.5 per cent) and Korea's Kospi (up 1.24 per cent).

• Technical setup

Analysts noted that Nifty50 managed to defend Friday's low point and that the bullish divergence on the relative strength index (RSI) was confirmed. The RSI has crossed above 30 level from the oversold situation on Monday and laid a framework for the market to inch higher towards 15,500. There were no incremental negative points to deal with, analysts had noted. Analysts had also said that a decisive move above 15,500 could open further upside bounce in the market.

• US data

Jeffrey Halley, Senior Market Analyst, Asia Pacific at OANDA said all eyes will be on US existing home sales data for May due today. There is a downside risk to the 5.40 million forecasts, he said.

"I’m not sure what the reaction will be to a bad number. Theoretically, the gnomes of Wall Street will price in less Fed tightening and send US yields lower and equities higher and buy risk sentiment currencies," Halley said.

The analysts, however, said he can’t see how a slowing US housing market is a positive environment for equities going forward.

• Fall in commodity prices

One should not be in a hurry in this market, Nischal Maheshwari of Centrum Broking told ET NOW in an interview, as he advised a wait and watch approach. "We are not far away from the bottom because the silver lining for India is that it is importing most of its inflation and is a very commodity-dependent market. If oil and metal prices have started to ease off, that is where we are going to benefit out of it," Maheshwari said.