The Nifty is trading with a positive bias and one should avoid taking any contra trades at this juncture until any reversal is seen, say analysts
Across-the-board buying following positive global cues boosted domestic equities to fresh highs in the intraday trade on August 30.
Flagship indices the Sensex and the Nifty rose over a percent each to hit record highs of 56,958.27 and 16,951.50, respectively, in intraday trade.
In sync with the benchmarks, the BSE midcap index, too, made a fresh peak of 23,671.98.
At close, the Sensex was 765 points, or 1.36 percent, up at 56,889.76, while the Nifty was 226 points, or 1.35 percent, up at 16,931.05.
The BSE Midcap and smallcap indices closed with gains of 1.72 percent and and 1.55 percent, respectively.
“Following a strong gap-up opening, equity benchmark indices maintained the trend throughout the day in line with the strength in global markets. Global markets strengthened as the anxiety over the Jackson Hole symposium subsided following the dovish tone of the Fed Chair. Jerome Powell stated to stick with the wait-and-see approach giving reassurance that the easy money policy will continue this year with a smaller rate of tapering,” said Vinod Nair, Head of Research at Geojit Financial Services.
Here are 5 key reasons that could have pushed the market to record high levels:
1 US Fed’s dovish stance
US Fed chairman Jerome Powell’s dovish stance seems to have boosted market sentiment. Powell hinted that the US central bank is not willing to quickly move towards raising rates.
The post-pandemic rally in the market has been mostly liquidity -driven and participants believe the market has more steam left as the liquidity tapering exercise is not likely to begin as early as was anticipated.
“The much-awaited Fed commentary after the Jackson Hole Symposium has indicated that ‘it would be appropriate to start reducing asset purchases this year’. But the Fed chief has hastened to add that there is much ground to cover before rate hikes. So, even though this can be treated as the beginning of normalisation of the accommodative policy, the communication is smart enough not only to calm the markets but to enthuse it too,” said VK Vijayakumar, Chief Investment Strategist, Geojit Financial Services.
2 Positive global cues
The positive sentiment of major global markets spilled on to the Indian market. Most Asian markets traded in the green after the US Fed chair’s dovish stance on the course of monetary stimulus and rate hikes.
Among the Asian peers, Nikkei, Hang Seng and KOSPI were in the green.
3 Macro factor
The foreign direct investment (FDI) into the country rose more than two folds to $17.57 billion during April-June this fiscal on account of measures such as policy reforms and ease of doing business, an official statement said on August 28.
Total FDI inflow rose to $22.53 billion during the first three months of 2021-22 as against $11.84 billion in the same period last year, it said. Total FDI comprises equity inflows, reinvested earnings and other capital.
FDI equity inflow grew by 168 per cent in the first three months of 2021-22 ($17.57 billion) compared to the year-ago period ($6.56 billion), it said.
“Indian benchmark indices started the week on a positive note, hitting fresh record highs. Traders are taking encouragement as foreign direct investment (FDI) into the country rises,” said Gaurav Garg, Head, Research, CapitalVia Global Research.Besides, investors await the release of key economic data such as Q1GDP growth rate and manufacturing and services PMI prints. Analysts and economists believe the Q1 GDP prints may show a strong rebound
year-on-year due to the low base of the last year.
4 Rupee’s rise
The rupee’s rise against the dollar also seems to have influenced sentiment. The Indian rupee appreciated 31 paise to 73.38 against the dollar in the opening trade on August 30.
At the interbank foreign exchange, the rupee opened at 73.46 against the dollar, then surged higher to 73.38, up 31 paise over its previous close.
5 Technical factors
Analysts point out that the Nifty is trading with a positive bias and one should avoid taking any contra trades at this juncture until any reversal is seen.
“The immediate supports for the Nifty are placed around 16,600 and 16,500, while the levels to watch on the upside will be 16,800 and then 17,000,” said Ruchit Jain, Senior Technical and Derivatives Analyst, Angel Broking.
As per CapitalVia Global Research, 16,500 is an important support level for Nifty in the short term. If the market sustains above it, we can expect it to remain positive and gain momentum, leading to an upside move till 16,900-17,000 level, it said.
