Fireworks on Street as Sensex back above 41,000; 5 factors contributing to the gains

The Sensex is back above 41000 while Nifty50 reclaimed 12100 levels. Sectorally, action was seen in the S&P BSE Metal Index, followed by Auto, Banks, and Energy indices.

After two straight days of consolidation, bulls pushed benchmark indices higher on Tuesday. The S&P BSE Sensex reclaimed 41000 while Nifty50 is back above 12100 levels.

At 10:30 AM, the S&P BSE Sensex was trading higher by nearly 400 points while the Nifty50 was up more than 100 points at 12,148.

Sectorally, action was seen in the S&P BSE Metal Index, followed by Auto, Banks, and Energy indices

Top Nifty gainers: Hero MotoCorp, UltraTech Cements, and Tata Steel

Top Nifty losers: Infosys, TCS, and Sun pharma among others.

We have collated a list of 5 factors that could be fuelling rally in Indian markets:

Positive cues from global markets:

Positive cues from global markets helped Sensex and Nifty50 climb crucial resistance levels. Asian share markets rose tracking gains made on D-Street amid rising fears of Coronavirus as deaths in China has topped 1,000.

In China, factories were slow in reopening after an extended Lunar New Year break, leading analysts at JPMorgan to again downgrade forecasts for growth this quarter, said a Reuters report.

The Dow Jones Industrial Average rose 174.31 points, to 29,276.82, the S&P 500 gained 24.39 points to 3,352.1 and the Nasdaq Composite added 107.88 points to 9,628.39.

Mutual Fund Flows:

The 43-player mutual fund industry witnessed inflows of Rs 7,548 crore in equity schemes in January, up 70 percent from December.

According to the data on the Association of Mutual Funds in India (AMFI), equity schemes had reported inflows of Rs 4,432 crore in December. Within the equity schemes, the mid-cap funds category witnessed the highest inflows worth Rs 1,798 crore.

Fund managers attributed the inflows in the mid-cap space to attractive valuations and bottoming concerns in the mid-cap category.

On Monday as well, DIIs were net buyers in Indian markets for more than Rs 700 cr, provisional data showed.

RBI grants a 5-year exemption to loans
The Reserve Bank on Monday said the special lending window with CRR exemption will be open from February 14 and incremental loans disbursed under this facility will have CRR exemption for the next five years.

This means that banks will not be needed to make an additional cash reserve ratio against any incremental loans disbursed to the targeted segments.

The window opens on February 14 for six months ending July 31, 2020, but the net demand and time liabilities (NDTL) will be calculated as of January 31, 2020, the central bank circular said this evening.

Stable crude oil:
Although Crude price rose slightly on Tuesday, but it is still trading around $55/bbl which is still good news for Indian markets and economy. Brent crude rose over 1 percent to $54.06 a barrel, while the U.S. West Texas Intermediate was up more than a percent to $50.20.

But, going forward, worries about the virus’s impact on oil demand, however, and rising U.S. oil supplies will likely cap price gains, said a Reuters report.

“With overall sentiments improving on the back of softer crude oil prices and lower interest rates as also unconventional steps taken by RBI recently has led to expectations of further softening of interest rates. These factors should help to sustain the growth in equity markets in the near term,” G Pradeepkumar CEO Union Asset Management Company told Moneycontrol.

“On the daily chart, crude oil prices rose more than 1 percent. Back home, the trend in the daily chart suggests that 20, 50, 100-Days EMA are suggesting flat to a weak trend in Crude but short-covering looks on cards as indicators are suggesting oversold prices,” Jateen Trivedi, Senior Research Analyst (Commodity & Currency), LKP Securities told Moneycontrol.

“On upside 3720-3750 shall act as major supply points. For the day 3580-3625 acts as resistance & 3550-3520 as supports,” he said.

Technical View:
The Nifty50 which formed a Bearish Belt Hold kind of pattern on Monday look set to form a bullish candle on the daily charts on Tuesday which would negate the impact of Bearish Belt Hold.

The index is now back above 50-Days Moving Average (DMA) placed at 12118, but could face pressure near 12200 levels which will act as an important resistance level for the index.

On the options front, maximum Put OI is placed at 12000 followed by 11500 strikes while Maximum Call OI is placed at 12500 followed by 12200 strikes.

Put writing is seen at 12000 then 11700 strikes while Call writing is seen at 12000 followed by 12200 strikes. Options data indicates a wider trading range between 11800 to 12300 zones.

“Bulls retreat after sharp “v” shape rally from the lows. Broader markets too witnessed profit booking. Undertone remains positive for the Nifty and investors/traders should look to build long positions on declines towards the support zone,” Manav Chopra, CMT, Head Research – Equity, Indiabulls Ventures Ltd told Moneycontrol.