Markets extend gains as China eases Covid curbs; Sensex up 1,041 points

Sensex, Nifty rise 4% in three trading sessions, paring monthly losses

The easing of Covid-19 restrictions in China and the healthy gains posted by Wall Street stocks last week triggered a sharp rally in global equities on Monday. 

Mirroring gains in Asian markets, the benchmark Sensex added 1,041 points, or 1.9 per cent, to finish at 55,926, while the Nifty ended the session at 16,661 with a gain of 309 points. Both the indices have risen over 4 per cent in the past three sessions. The latest gains have helped the markets pare monthly losses to just 2 per cent, after dropping as much as 8 per cent.

The curbs on movement in China were relaxed from Sunday after the authorities said the Covid outbreak was under control. Shanghai’s Vice Mayor Wu Qing also said the government planned to ease conditions to help companies resume work and laid out a plan for accelerating the economic recovery.

“China is the supplier to the world and is an important trading partner to most countries, including India. The easing of curbs cheered the markets a bit,” said U R Bhat, co-founder, Alphaniti Fintech.

Overseas investors bought shares worth Rs 502 crore, while domestic investors pumped in another Rs 1,524 crore on Monday. Until Friday, foreign portfolio investors (FPIs) were net sellers to the tune of Rs 42,274 crore in May -- their highest monthly selling this year.

Analysts said traders were trying to gauge whether the massive FPI sell-off was coming to an end as they were buying battered stocks. However, interest rate hikes and rising food prices due to the Russia-Ukraine war are keeping investors on tenterhooks.

Analysts said a bit of rebalancing from institutional investors could have also contributed to improved sentiment. The S&P 500 rose 6.5 per cent last week, its biggest weekly gain since November 2020.

The US inflation-adjusted consumer spending data released last week rose 0.7 per cent, the most in three months. The softening of inflation further boosted sentiment as investors expected the US Fed to be less aggressive with monetary tightening.

“Even interest rate hikes may not be necessary the way they were initially thought because the economy is probably better shaped than what was expected when the announcement of successive interest rates was made,” said Bhat.

Crude oil prices rose on Monday and were trading at $120 per barrel amidst the easing of lockdown in China and the European Union working on a plan to ban the import of Russian crude oil.

The early arrival of the monsoon in Kerala raised hopes of a favourable impact on agricultural crops and boosted sentiment.

"The markets were thirsting for some positive news, and last week's news flow was the straws in the wind which they clutched onto. The markets will probably have to correct the new inflation regime. We have gone as far as we could in terms of bullishness based on this marginally positive news. There may not be too much of an upside immediately,” said Bhat.

Going forward, analysts said the US payroll numbers, which will be out later this week, and the shrinking of the Federal Reserve's balance sheet, which will begin on Wednesday, will provide direction to the markets.

“With the earnings season largely behind us, the upcoming macroeconomic data such as GDP numbers, PMI data, and auto sales will be in the focus for cues,” said Ajit Mishra, VP- research, Religare Broking.

Vinod Nair, head of research, Geojit Financial Services, said a near-term trend reversal in the market was visible, supported by valuation comfort and a positive trend in global counterparts.

“The market is expected to have a positive run in the near term. However, the impact of central bank policies will be a key factor to be monitored."

The market breadth was strong on Monday, with 2,332 stocks advancing and 1,136 declining on the BSE. All the 19 sectoral indices of the BSE ended with gains. The BSE IT index jumped nearly 4 per cent following last week's rebound in tech-heavy Nasdaq.