Sensex gains 2,100 points in just 3 sessions

Towards the middle of last week, Indian markets were looking at deep cuts in May. However, there was a significant turnaround in the markets on 26th May, 27th May and 30th May.

In these 3 sessions, the Nifty gained over 800 points while the Sensex gained a good 2,100 points. Of course, on 31st May, the Nifty and the Sensex were still lower ahead of GDP data, but the monthly loss of 3% on the indices was much lower than expected.

What exactly led to this Sensex bounce of 2,100 points in just about 3 sessions between 27th May and 30th May? Firstly, China has started easing its shutdown aggressively in Shanghai and that is likely to loosen the supply chain constraints.

Secondly, the PCE inflation in the US (the key metrics for Fed) tapered by 30 bps for April, giving hope that inflation control was working.

Lastly, the growth slowdown fears raised the hope that the central banks may not really walk the talk on implementing a ultra-hawkish monetary stance.

A number of stocks stood out in this rally, but first the big sectoral impact. The maximum impact was visible in rate sensitives like banks, autos and realty. Inflation coming down is always a good signal for the rate sensitives.

In addition, tech stocks bounced back sharply in the last few days as it became evident that tech spending would not really slow in the US. Most technology stocks bounced sharply from recent lows in the market. 
 

The Fed may not have turned dovish, but it has certainly been less hawkish as the pro-industry voices of reason have been trying to tame the likely impact of the hawkish stance. Among stocks, M&M was a major Nifty gainer on better numbers and aggressive capex plans.

The IMD report of the early onset of monsoons also boosted the sentiments around agri stocks as FMCG stocks and even agrochemical stocks like UPL were among gainers.

One major reason for the bounce in the market has been the sharp fall in the volatility index or the VIX. The VIX has tapered from almost 27 levels to below the 20 levels in just about 3 days team. That paves the road for a buy on dips market, which is normally the first signal coming from a sharp fall in the VIX.

In the process, the crucial 16,400 resistance for the Nifty was cleared with the next plausible resistance only likely to come after 16,800 on Nifty.

The bull rally in the last 3 days rubbed off on many of the heavy weights which were among the top Nifty gainers. These included Titan, Larsen & Toubro, Tech Mahindra, Reliance Industries, Infosys and TCS. Of course, amidst all these small signals of optimism, the foreign investors or FPIs continued to be aggressive net sellers.

If you consider the period from October 2021 till end of May 2022, the FIIs have sold more than Rs.250,000 crore in equities and debt combined. For the FPIs, it still remains risk-off on India.