Mumbai: Benchmark Indian indices rose for the third straight session on retail buying and DII, supported by lower US Treasuries and the dollar, which reignited risk sentiment in global financial markets in what some analysts say could be the start of an early Santa Claus rally The key risk to the rebound from the lows is a widening of the West Asian conflict, which could upend global markets, market veterans say.
The Nifty and Sensex gained nine-tenths of a percent each at 19,411.75 and 64,958.69 while the Nifty small cap 250 jumped 1.07% to 12,384.35 while the Nifty Midcap 150 rose 0.9% to 12,75,953.
While FPIs sold temporary ₹549 crore, DIIs bought net ₹595.7 crore, implying that retail direct investors also entered the Monday rally in a major way.
Sentiment turned after November 1, when the Fed kept a key interest rate unchanged for the second time since September, after raising it from near zero last March to 5.25% until July this year.
The US 10-year Treasury slipped from 4.73% on November 1 to 4.59% on the day of November 6, while the dollar index, which measures the dollar against a basket of six currencies, fell 1.85% to 104.90 on the day of November 6 during the same period. “The Indian markets are being driven by the risk in the global markets after a break from the Fed, reinforced by weak jobs in October, which could be the start of an early St. Nick,” said Andrew Holland. CEO, Avendus Capital Public Markets Alternate Strategies. “The weak jobs report puts pressure on the Fed to hike again in December and raises expectations of an interest rate cut next year, which the markets could start pricing in. This will result in short covering in stocks and bonds, which we are also seeing in India.”
FPIs sold shares ₹24,548 crore last month, the most in nine months and lifted cumulative net bearish bets on index futures to a near-record high of 175,698 on 2 November, the most since the 196,378 contracts they sold net on 22 March. Certainly, they cut the pants to 162,694 contracts on November 3. Data for 6 November had not been uploaded by NSE till press time. Additional short covering could push the market higher.
Of all the broader market indices, the Nifty Smallcap 250 outperformed the benchmark by falling just 1.64% from its record high of 12590.45 on 18 October to 12384.35 on 6 November. This contrasts the Nifty’s 4% fall from a record high of 20222.45 on 15 September to 19411.75 on Monday and the Nifty Midcap 150’s 4.14% fall from a record high of 15599.05 on 15 September to 14954 most recently.
The small-cap index outperformance was led by BSE, which rose 26% between October 18 and November 6 to ₹1863.25. Angel One, Jindal Saw, Suzlon Energy and CreditAccess Grameen which gained between 22 and 25% were the other gainers.
“The Smallcap outperformance could continue, but I expect the rebound in Nifty to be limited to another 150-200 points,” said Abhilash Pagaria, head of Nuvama Quantitative and Alternative Research.
Deven Choksey, Managing Director of KR Choksey Stocks and Securities, expects the Nifty to oscillate between 18800-20000 soon.
Indeed on Monday the Nifty broke a key resistance of 19367, which is the 38.2% Fibonacci retracement of its fall from the record high of 20222.45 on September 15 to the low of 18838 on October 26. The next resistance, which coincides with the 61.8% retracement, is around 19700.