Sensex, Nifty rise over a percent each to new highs, 5 key factors behind the rally

Across-the-board buying following positive global cues boosted domestic equities to fresh highs within the intraday trade on August 30.

Flagship indices the Sensex and therefore the Nifty rose over a percent each to hit record highs of 56,734.29 and 16,881.35, respectively.

In sync with the benchmarks, the midcap and smallcap indices also climbed over a percent. The BSE midcap index, too, made a fresh peak of 23,591.25.

At noon, the Sensex was 519 points, or 0.93 percent, up at 56,644, while the Nifty was trading 155 points, or 0.93 percent, higher at 16,861.

1 US Fed’s dovish stance

US Fed chairman Jerome Powell’s dovish stance seems to possess boosted market sentiment. Powell hinted that the US financial institution isn’t willing to quickly move towards raising rates.

The post-pandemic rally within the market has been mostly liquidity -driven and participants believe the market has more steam left because the liquidity tapering exercise isn’t likely to start as early as was anticipated.

“The much-awaited Fed commentary after the Jackson Hole Symposium has indicated that ‘it would be appropriate to start out reducing asset purchases this year’. But the Fed chief has hastened to feature that there’s much ground to hide before rate hikes. So, albeit this will be treated because the beginning of normalisation of the accommodative policy, the communication is sensible 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 within 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 within the green.

3 Macro factor

The foreign direct investment (FDI) into the country rose quite two folds to $17.57 billion during April-June this fiscal on account of measures like policy reforms and simple doing business, a politician statement said on August 28.

Total FDI inflow rose to $22.53 billion during the primary three months of 2021-22 as against $11.84 billion within 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 within 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 discharge of key economic data like Q1GDP rate of growth and manufacturing and services PMI prints. Analysts and economists believe the Q1 GDP prints may show a robust rebound
year-on-year thanks to the low base of the last year.

4 Rupee’s rise

The rupee’s rise against the dollar also seems to possess influenced sentiment. The Indian rupee appreciated 31 paise to 73.38 against the dollar within the opening trade on August 30.

At the interbank 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 means 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 amount to observe on the upside are going to be 16,800 then 17,000,” said Ruchit Jain, Senior Technical and Derivatives Analyst, Angel Broking.

As per CapitalVia Global Research, 16,500 is a crucial price for Nifty within the short term. If the market sustains above it, we will expect it to stay positive and gain momentum, resulting in an upside move till 16,900-17,000 level, it said.

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