Global rally, DII buying: Reasons why BSE Sensex jumped 1,300 pts on Aug 16

Hopes of US rate cut triggers global stock market rally: The BSE Sensex rallies past the 80,000 mark, and the NSE Nifty surges atop 24,500 led by strong gains in IT and private bank shares on Friday.

Stock markets, Sensex, Nifty rally today: Indian stock market rallied sharply on Friday, tracking strong cues from the overseas market, as the BSE and the NSE resumed trading post the holiday break on August 15 - on account of the Independence Day holiday.

The BSE Sensex hit an intra-day high of 80,518 and was up 1,412 points at the highest point of the day. Meanwhile, its NSE counterpart, the Nifty 50 index hit a day's high of 24,564.

The Sensex ended with gains of 1330.96 points, or 1.68 per cent, at 80,436.84, while the Nifty50 advanced 397.40 points, or 1.65 per cent, to settle at 24,541.15.

 

In the broader market, the BSE MidCap and SmallCap indices also surged over 1.5 per cent each.

Among the index heavyweights - ICICI Bank and HDFC Bank contributed to nearly one-fourth of the day's gain. TCS, Infosys, Reliance Industries, ITC, and M&M were the other key contributors.

In terms of percentage gainers, Tech Mahindra was the top mover, up 4 per cent. while Mahindra & Mahindra, Tata Motors, TCS and HCL Technologies gained between 2.6 per cent and 3.5 per cent.

Here are the 3 key reasons why the Sensex has rallied over 1,000 points on Friday.

Global stocks rally as bets on US Fed rate cut rise

Over the last two days, hopes of a rate in September rose on the back of cooler US consumer inflation data and stronger-than-expected growth in US retail sales in the month of July. 

The US CPI inflation dipped to a 3-year low at 2.9 per cent as against market expectations of 3 per cent. Further on Thursday, retail sales superseded Wall Street expectations with 1 per cent growth in July as against an expectation of 0.4 per cent; thus raising bets of up to 50 basis points rate cut in the US Federal Reserve policy meeting in September.

"This fall brings inflation closer to Feds comfort mark of 2 per cent, brings us one step closer to the rate cuts. There is still one more inflation reading which will be published before the September meeting. Thus, hopes are still alive and who knows we might get more than 25 bps cut", said Apurva Sheth, Head of Market Perspectives and Research of SAMCO Securities.

"But the key question remains will it be enough to cheer the markets? There is strong possibility that US enters a recession soon. If that happens then the rate cuts won't help to keep the markets afloat.” cautioned Apurva Sheth in a note.

Meanwhile, the NASDAQ zoomed almost 2.5 per cent on Thursday; while Dow Jones the S&P 500 rallied around 1.5 per cent each. This prompted buying in global markets.

Back home, hopes of an improved outlook on the US economy triggered a sharp rally in IT shares. That apart, growth optimism in recent Q1 earnings also aided the sentiment. READ MORE

Among other major markets in Asia - Japan's Nikkei soared 3.6 per cent. Hang Seng gained 1.7 per cent. Kospi and Taiwan jumped 2 per cent each. Straits Times too was up over 1 per cent.

DIIs flows remain robust

Even as benchmark indices witnessed severe volatility in the month of August so far, domestic institutional investors (DIIs), barring the first trading day of the month, have been consistent buyers in the cash market.

DIIs so far in August have net bought stocks worth Rs 31,450 crore. They have been the pillar of the market boom so far in 2024; on the back of steady SIP flows by retail investors. With net purchases in each of the calendar month so far this year, DIIs have reportedly invested Rs 2.92 lakh crore in Indian equities thus far.

On the contrary, foreign investors have offloaded stocks to the tune of Rs 1.49 lakh crore in the same period. 

Traders await breakout on Nifty 

Post the sell-off on August 05, the Nifty has been trapped in between in 20-DMA (Daily Moving Average) and the 50-DMA. With today's sharp rally, the index was seen attempting to break above its 20-DMA on the daily scale. The 20-DMA at present stands at 24,470, while the 50-DMA stands at 24,105.

"The trading range is between 23,900 and 24,500, with 24,000 on the lower side and 24,350 on the upper side as critical hurdles. A significant move is anticipated once this range is broken", said Sameet Chavan, Head Research, Technical and Derivative - Angel One in a note.