Sensex rises 200 pts, Nifty above 22,600 as market snaps 4-day losing streak. Is the relief rally sustainable?

The Indian stock market turned positive, with the Sensex and Nifty staging a sharp recovery of more than 1% from early losses, snapping a four-day losing streak that wiped out massive sums of investor wealth.

Sensex rose over 200 points to cross 73,330, recovering more than 800 points after hitting the day’s low at 72,515. Meanwhile, Nifty neared 22,660 after dropping below 22,400 earlier in the day.

Kotak Mahindra Bank shares jumped more than 2% to lead gains on Sensex, while Adani Ports, Tata Steel, Eternal, Sun Pharma, Axis Bank, Tech Mahindra, L&T, TCS and Trent shares rose 1-2% each to follow. Bucking the trend, Asian Paints, Infosys and HUL fell 1-2%.



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Broader markets also took a sigh of relief following a significant crash on Friday, with Nifty Midcap 100 and Nifty Smallcap 100 indices trading in the green with marginal gains, as seen at around 10 am. However, India VIX, which reflects market volatility, jumped 4% to remain close to 18.

Among the sectors, Nifty Metal and Nifty Pharma jumped more than 1% each to lead gains, while Nifty IT, Nifty FMCG and Nifty PSU Bank indices slipped into the red. The overall market breadth turned positive, with NSE seeing 2,092 advances against 1,124 declines, while 104 stocks remained unchanged.

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.

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“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 overvalued, 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.

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

However, he noted that Friday's long lower wick 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.