After taking a severe knock on Friday, the markets have bounced back strongly, with the benchmark indices rising over 3 per cent. At 1359 hours, the Sensex rose 500 points to 16,348.92 and the Nifty moved up to 4,900 levels, rising 154 points.
The bounce back was expected because the markets were oversold. Also, global sentiments improved and Asian markets were trading with big gains.
The Nifty had breached key technical levels on Friday, setting alarm bells across dealing rooms. It closed below the 2008 lows of 4,776 indicating extreme bearish sentiments.
Despite the strong rebound, analysts were skeptical. Salil Sharma, Partner at Kapur Sharma & Co said, "If the markets reverse from here, it will lead to a positive divergence, indicating selling is over but a close below 4,800 will suggest a definite breakdown."
Analysts have pointed to rising inflation and interest rates, and slowing growth behind the underperformance of Indian equities. Saurabh Mukherjea, Head of Equities at Ambit Capital said, “Plenty of downside is left in the Indian markets because our economic fundamentals have weakened in the last year and half... The Sensex will probably move towards 14,500 by the year end."
All sectoral indices were trading in the green led by IT stocks that rose over 3.5 per cent. Banking, metals and realty stocks also advanced over 3 per cent. On the Sensex, 27 of the 30 stocks were trading higher. JSPL surged over 6 per cent. TCS rose nearly 5 per cent. ICICI Bank, Tata Motors, Tata Steel and Wipro rose 3.5-4 per cent.
Three benchmark stocks - Reliance Industries, Infosys and SBI - were all up. RIL and Infosys, together, added over 100 points (25 per cent) to the Sensex gains. Cipla, Hero MotoCorp and Maruti were down. Maruti's Manesar plant saw another clash between the management and workers, leading to disruption of work.
On the wider, BSE 500 index, 92 per cent stocks were trading higher, indicating strong breadth.
Most Asian markets were trading with big gains on the back of the rally on Wall Street last Friday that sent the Dow higher by over 1 per cent to 11,284.54. While the Fed did not announce a new round of quantitative easing, Ben Bernanke left a window open for further economic stimulus in the event of a recession.
The rally in Asian markets was led by South Korea's Kospi that gained over 3 per cent. The Hang Seng rose 1.5 per cent and Japan's benchmark Nikkei was down over 0.5 per cent.
Independent market analyst Saumil Trivedi said investors should avoid bottom fishing and stay in cash or invest in gold. "Serious cash market exiting is taking place...this fall is not only on the basis of speculative selling," Mr Trivedi added.
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