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Equities close at 5-month high, shake off earlier losses over fresh US fiscal stimulus

The stock markets gained momentum during the last hour of the trading session, leading to their close at the day’s high.The stock markets gained momentum during the last hour of the trading session, leading to their close at the day’s high.

Indian equities rallied on Tuesday, after stock markets around the world cheered the announcement of yet another round of fiscal stimulus by the US. The benchmarks erased their previous trading session losses, with the Sensex rising as much as 558.2 points or 1.47% to close at 38,492.95. Broader Nifty was up 168.75 points or 1.52% to close at 11,300.5. Indian equities ended the day close to their five-month highs.

The stock markets gained momentum during the last hour of the trading session, leading to their close at the day’s high. The Nifty touched the highs of 11,317.75 before ending the day a little lower. Cues from other Asian markets supported the benchmarks’ rally.

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Hong Kong, China and Korea rallied between 0.69% and 1.76%. The Asian markets extended the gains of the US markets in the previous trading session. The US markets rallied on Monday prompted by Republican leaders in the Senate revealing a draft plan to provide $1 trillion in funding for Covid-19 relief. The new package was likely to include payment of $1,200 to unemployed Americans, among other provisions.

This led to S&P 500 rallying as much as 0.74% on Monday, and Dow Jones rallied by 0.43%.

European markets, however, were trading in the negative for the second straight day with bourses in the UK, Germany and France declining between 0.1% and 0.8%.

Sanjeev Hota, head of research, Sharekhan by BNP Paribas, said, “The fiscal measures by the US were well anticipated. The ECB also announced their recent bond buying measures. Going forward all the central banks globally will continue to announce measures to help the economy. The investors took the announcement as a good sign and that is helping the market sentiments. Additionally, there is an acceleration in the potential launch of vaccines and there have been some positive results in the human trials as well, which is helping the market’s mood.” According to him, at the start of the recovery cycle, the markets tend to trade at higher values. The only risk to the current rally is the second wave of virus attack and escalation in geopolitical tensions.

Foreign portfolio investors (FPIs) have, so far till July 24, bought stocks worth $1.09 billion. Indian equities have received steady inflows from May to July 24, when FPIs pumped in $5.2 billion. On the whole, the total FPI outflow stands at $1.3billion so far in 2020. According to provisional data, on Monday, while FPIs sold stocks worth $59.64, domestic institutional investors sold $128.6 million worth stocks. The futures and options segment witnessed volumes worth Rs 17.5 lakh crore against the six-month average of Rs 14.9 lakh crore.

Better-than-expected earnings by listed companies for the June quarter also helped boost the investor sentiment. Tech companies in Nifty have reported a good performance for the quarter. The streets cheered the results of HDFC Bank, Axis Bank, among others. Shares of Ultratech Cement gained 7% to close at Rs 4131.1 a piece on Tuesday, riding on better-than-expected quarterly performance. The Aditya Birla Group-owned company saw a 37.8% year-on-year decline in profit, but other incomes doubled.

Several factors have contributed to the rally of stock markets since April, rising 48.4% from their March 23 lows. These include rush in global liquidity due the quantitative easing measures taken by global central banks and the optimism over reopening economies. However, a Nomura report stated that the resumption of economic activities appeared to be stuck. “The Nomura India Business Resumption Index suggests activity remains stuck at close to 30% below pre-pandemic levels, with the unyielding pandemic curve flattening the mobility curve,” said the Nomura report.

Besides Ultratech Cement, other handsome gainers on Nifty were Kotak Mahindra Bank, Tata Consultancy Services, Grasim and Tata Motors — up by 7%, 4.7%, 4.69%, 4.59%, and 4.42%, respectively. The biggest losers were ICICI Bank, Bharti Infratel, Nestle India, Asian Paints and ONGC — down by 1.7%, 1.62%, 1.42%, 1.2%, and 0.87%, respectively.

Sectorally, the biggest gainers were Nifty Auto, Nifty IT, Nifty Metal, Nifty Realty, and Nifty Private Bank. Among the broader markets, Nifty Midcap and Nifty Smallcap were up 0.89% and 1.36%, respectively.

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