Sensex, Nifty gain 4% this week; here’s what drove the rebound

Domestic equity markets overcame the downbeat mood and logged gains of over 4 per cent for the week ended July 22. The BSE Sensex and the Nifty50 rose over 2,300 and 660 points, respectively, during the period.

While analysts feel the fundamental backdrop has not drastically changed, a combination of domestic and global factors have lowered investors’ apprehension. The market, they said, may have found the bottom.

“Falling crude oil prices and rebound in FII inflows into the domestic market helped benchmark Sensex to close above the psychological level of 56,000. The fear of aggressive rate hikes by both the US Fed and RBI seems to be moderating, which is giving investors some room to lap up stocks of companies with good fundamentals,” said Amol Athawale, Deputy Vice President – Technical Research, Kotak Securities.

Here’s a breakdown of what is aiding investor confidence:

Upbeat global mood: US benchmark indices have risen 4-7 per cent in the last five sessions as corporate earnings have fared better-than-expected. Among the big names, Netflix Inc reported a lower fall in subscriber count, while Tesla Inc beat Wall Street’s revenue estimates, despite the shutdowns in China. Around 90 companies have, so far, reported numbers from the S&P 500 universe. Of this, nearly 78 per cent have reported earnings above analysts’ expectations, said a CNBC report.

Domestic corporate earnings: Corporate earnings, back home, have also been better-than-expected. IT majors have delivered decent revenue growth despite a hit on profit margins, and the companies remain confident about a sustained demand momentum. FMCG major HUL posted robust topline and bottom-line growth with much better volumes. Among others, HDFC Bank and IndusInd Bank also posted healthy numbers.

Softening commodity prices: Most global commodity prices including steel, crude, and palm oil have corrected sharply over the last few weeks. While Brent crude has shed around 13 per cent from the year’s high, palm oil prices have dropped around 30 per cent from the peak. This has been comforting given the country’s rising import bill.

Rate hike expectations: Commodity prices have been on a downward slope amid fears of demand slowdown. The concerns arise as economists see the US and Europe entering recession by 2023. Given this, investors believe central banks may not be as aggressive in their monetary tightening approach as factored-in earlier.

Moderation in CPI Inflation: With retail inflation moderating for a second consecutive month in June, to 7.01 per cent, investors are betting on hopes that inflation may have peaked in India. At the same time, India’s IIP growth for May came in at a 12-month high of 19.6 per cent, hinting at a robust economic recovery.

FPI trend reversal: Notwithstanding the weakness in the domestic currency, foreign outflows have seen a significant slowdown in July. While foreign investors sold equities worth Rs 50,203 crore in June, they have sold shares worth Rs 776 crores so far this month.

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