Indian equity benchmarks reversed course to rally sharply on Monday in a low-volume session, stalling a four-day losing streak, even as fears remain over China’s ability to adapt after abandoning its Covid Zero policy and quelled the appetite for risk-taking.
Bouncing back from four days of losses and a weaker opening, the 30-share BSE Sensex index rallied 721.13, or 1.2 per cent, to close at 60,566.42, and the broader NSE Nifty-50 index rose 207.80 points, or 1.17 per cent, to end at 18,014.60.
The domestic stocks rallied despite cautious trading and reduced liquidity with many markets closed for holidays.
“I expect the markets to recover sharply as the punishment meted out on Thursday and Friday was unwarranted”, G Chokkalingam, Founder and Head of Research at Equinomics Research and Advisory, told Reuters.
However, Mr Chokkalingam cautioned of low volumes. “Normally, trading is thin this time of the year. Expect dullness in the market as foreign institutional activity dies down as they go on holidays.”
The rupee, too, rose sharply against the dollar, recouping all it Friday’s losses and some.
While global stock markets that were open made small advances, the positive impact of recent US inflation data was partially offset by worries about China’s ability to adapt after abandoning its Covid Zero policy.
China’s National Health Commission announced it would stop providing daily coronavirus case data in the midst of a new wave of infections, making it more difficult for investors to evaluate the virus’s economic impact.
“The undertone is likely to remain cautious,” said Prashanth Tapse, Senior Vice President for Research at Mehta Equities.
“Relentless cascade of COVID-19 news is likely to make any investment decision challenging in the near term, as markets fear the risk of new virus spread could bring back stricter lockdowns,” he added.
The Federal Reserve’s closely monitored measure of inflation dropped and consumer spending was stagnant, according to data released on Friday. According to a University of Michigan survey, consumer expectations for inflation in the coming year decreased this month to their lowest level since June 2021.
Even though US stocks ended the week higher on Friday after that data, the S&P 500 and the heavily tech-focused Nasdaq 100 nevertheless recorded weekly losses.
“The US is enjoying ‘Christmas day’ today and UK/Europe is enjoying ‘Boxing Day’. S&P is on track for a more than 6 per cent decline this month, its fourth worst December on record as US value funds and passive equities had record weekly net outflows,” said Amit Pabari, Managing Director of CR Forex Advisors.
The performance of global stocks in 2022 as a whole was the worst it has been in more than a decade. Global stocks faced major turning points in 2022 after a two-year bull run that was fueled by liquidity as Russia invaded Ukraine, the US Fed waged a fierce struggle against inflation, and a disaster enveloped international financial markets.
“The Fed has been telling us they are going to tighten financial conditions until a recession or something ‘breaks’,” Stephen Innes, managing partner at SPI Asset Management, wrote in a note, according to Bloomberg.
“This is not a great place to own speculative assets, especially the long-duration variety telling me in times like this, cash itself is the best at the money put.”
Still, in a challenging year, the Sensex has outperformed its competitors, with domestic investors supporting the benchmark during this year’s crises.
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