Indian markets rebounded on Tuesday, clawing back some of the losses from a brutal sell-off in the previous session.
The bounce-back came amid a recovery in European equities and an additional US fiscal stimulus despite persisting concerns over the emergence of a new coronavirus strain in the UK.
Both the benchmark indexes ended nearly 1% higher with the BSE Sensex closing at 46,006.69, up 452.73 points. The 50-share index Nifty ended at 13,466.30, up 137.90 points.
European shares rose during the day as the approval of a US stimulus package helped allay worries of a further dent to the global economy from the new coronavirus strain in the UK. US President Donald Trump, meanwhile, signed a stopgap measure to fund US agencies for another week after Congress passed a $892 billion Covid aid package overnight that aims to shore up the nation’s pandemic response and bolster the battered economy.
Other markets in the Asia-Pacific region, however, declined following investor nervousness overnight on Wall Street due to the new Covid strain in the UK. Markets in China, Hong Kong, Japan, Taiwan and South Korea fell 1-2% during the day.
“Markets took an unexpected positive momentum in the afternoon, during a see-saw trading day, following the positive opening of the European market, which recovered from yesterday’s sell-off. The sectorial rally was led by IT and pharma stocks, with other sectors also supporting the up move,” said Vinod Nair, head of research, Geojit Financial Services.
The India volatility index, or VIX, also cooled off with the gauge closing 5.19% lower at 21.99. However, analysts expect volatility in Indian markets to continue in the near-term.
Binod Modi, head of strategy at Reliance Securities, said markets are likely to remain volatile in the coming days until clarity emerges about new Covid strains and efficacy of ongoing vaccinations.
He said investors have once again started focusing on safe counters such as IT, pharma, telecom, fast-moving consumer goods and chemicals.
Additional fiscal stimulus in the US is likely to lead to more foreign liquidity for domestic shares, which have already made a record rally since the Covid-19 outbreak.
However, abundant liquidity support in the domestic markets is not supported by fundamentals, said Saion Mukherjee, head of India equity research, Nomura.
“Liquidity can also have a positive impact on fundamentals if supported by adequate policy measures and improved sentiment. The market seems hopeful, but we aren’t yet convinced of this impact. Consensus earnings growth expectations are high, and market valuations are at the peak. Therefore, we are cautious and selective on Indian equities,” Mukherjee said.
(Reuters contributed to the story. )