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Tracking upbeat global cues, the domestic stock market surged over 1.3 per cent on Monday on hopes the US Federal Reserve may go for less aggressive rate hikes after the US reported a wage growth slowdown and sluggish service sector activity, and China reopened its international border.
The 30-share BSE Sensex ended at 60,747.31, up 1.41 per cent, or 846.94 points. It had touched an intraday high of 60,889.41, or 1.65 per cent, or 989 points. The broader NSE Nifty climbed 1.35 per cent, or 241.75 points, to end at 18,101.2.
The rupee also appreciated 29 paise to close at 82.37 against the US dollar compared to the previous close of 82.66.
With China steadily lifting covid restrictions, there are hopes that demand may pick up going ahead, which could give breathing space for the markets already battling recession fears, higher interest rate regime and benign inflation levels, said a market analyst.
However, despite the recovery, markets may remain choppy as most of the lingering worries are yet to subside.
“Wall Street climbed in anticipation of a less aggressive US Fed as wage growth slowed and service activity contracted, fuelling bets that inflation is moderating. Furthermore, the December (US) payrolls rising higher than anticipated increased the possibility of a softer landing for the US economy,” said Vinod Nair, Head of Research, Geojit Financial Services. These gains were also absorbed by the domestic market, with IT being the biggest gainer ahead of the release of sector earnings, as the favourable US economy boosted sector optimism.
US nonfarm payrolls increased by 223,000 in December 2022, slowing from 256,000 additions in November 2022. This also marked the smallest pace of increase in 2 years.
While the US unemployment rate dipped to 3.5 per cent, wage growth slowed down. Other macro indicators were dismal. US ISM non-manufacturing PMI slipped into the contraction (49.6 in December 2022 versus 56.5) for the first time since May 2020.
US factory orders also declined by 1.8 per cent in November 2022 (est. -0.8 per cent), from an increase of 0.4 per cent in October 2022. The surprise recovery in the IT majors, ahead of the TCS numbers, contributed significantly to the rebound. Besides, a surge in energy, metal, auto and banking majors further added to the positivity. The broader indices too ended higher and gained in the range of 0.5-0.8 per cent. While foreign investors were sellers, domestic institutional investors invested over Rs 1,700 crore.
“Investors now expect the Fed to soften its stance, as the economy loses steam,” Bank of Baroda said in a research report. Asia’s benchmark stock index was on track to enter a bull market compared to October 24 low, as China’s reopening and a weakening dollar lured investors back to the region. European stocks rose on Monday, as investors bet that cooling inflation on either side of the Atlantic will allow central banks to slow the pace at which they raise interest rates early this year.
Kotak Securities Head of Equity Research (retail) Shrikant Chouhan said positive undercurrent in global markets had a rub-off effect on local equities, as investors resorted to short-covering after last week’s correction helping key benchmark indices recapture their psychological levels.
Going ahead, markets will keep a close watch on the US and India’s CPI data, to be released later this week. US Fed Chair Jerome Powell’s speech on Tuesday will also be keenly watched by the market participants.
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