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A day after the virtual bloodbath in the markets, the bulls were back at their raging best on Dalal Street on Wednesday. Sensex rose 491 points and Nifty, 151.
However, today’s rally surprised many. Though a majority of the market participants attributed the reason to softening of inflation, which raised hopes of a rate cut sooner than later, most analysts feel the real reason is continuous buying by foreign institutional investors.
They stepped up buying to the tune of Rs 1,647 crore on Wednesday.
Global cues have been positive for quite sometime, but today traders, who went short on Monday when the Sensex crashed over 400 points, were trapped, said analysts.
RBI statement
RBI Governor D. Subbarao’s statement that he had taken note of falling inflation for future policy decisions helped benchmark indices enjoy a dream run at the bourses.
The Governor was referring to a fall in WPI inflation to 41-month low for April at 4.89 per cent, against 5.96 per cent in March.
The BSE S&P Sensex rallied to a 28-month high of 20,241.96 in intra-day trade to finally end the day at 20,212.96, up 491 points or 2.49 per cent. The Nifty too touched a 28-month high of 6,157.10 intra-day to close at 6146.75, up 151 points or 2.52 per cent.
Of a total of 2,599 scrips on the BSE, 1,466 advanced, while 973 declined and 160 scrips remained unchanged.
Rate-sensitive sectors such as auto, capital goods, realty and banking were clearly the toast of the markets. The BSE realty and banking index closed up 4.04 per cent and 3.95 per cent, from their previous level, at 1,956.35 and 14,962.99 respectively.
Surprised rally
Sanjeev Zarbade, Vice-President- Private Client Group Research, Kotak Securities, said: “The market staged a strong rally today with the Nifty reaching its highest level since 2011. The strength of the rally took everyone by surprise.”.
“Clearly, the rally has been partly fuelled by heightened expectations of further easing by the central bank. Thus, we saw heavy buying interest in rate-sensitive scrips, including banks, auto and property,” he added.
Alex Mathews, Head Research, Geojit BNP Paribas Financial Services, said: “Apart from short-covering by traders, who built short positions after Monday’s carnage, the main reason for the rally was the inflation falling below 5 per cent signalling that the RBI could reduce rates in the coming policy.”
Volatility index
However, one worrying factor for the market is rising volatility index. The Nifty VIX rose to 18.19, indicating that fear in the market is also increasing among trading community, according to an analyst.
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