The national benchmark Nifty50 has seen a sharp rise since mid-July, even as fears grow that the world’s major economies could be hit by recession by the end of 2022. Nifty50, which tracks the performance of blue chip companies, has climbed 1,773 points or generated a return of more than 10% since July 1, when it ended at 15,752.05. The index managed to close above the 17,000 level on July 29 for the first time after May 2. Last week, Nifty closed between 17340.05 and 17397.50. During Monday’s session, the index closed above the physiological level of 17,500, indicating strong buying momentum.
But what factors are driving this rally in Nifty? Experts say sustained FII buying and falling oil prices are among the main factors driving the rally, although geopolitical developments continue to spook investors. According to the data, FIIs have been net buyers since early August. FII bought more than Rs 7,000 crore in cash. Falling crude oil prices amid concerns about the demand outlook would be another reason for the positive sentiment in the market.
1. Markets favoring inflation
Pawan Parakh, Director and Portfolio Manager, Renaissance Investment Managers, said there has been a sharp correction in commodity prices across the board. In addition, a sharp hike in interest rates by the US Fed could potentially slow down the US economy.
“A confluence of these two factors has given rise to the belief that the worst of inflation is behind us and that going forward inflation is likely to continue to decline,” he said.
If true, Parakh said, the pace of rising interest rates should ease.
“Markets are prioritizing controlling inflation over potential recession risks and therefore stock market rejuvenation,” he said.
2. REITs added more than they sold
Rachit Chawla, CEO of Finway FSC, said stocks across the world were up around 11% from lows at the start of the year. While markets depend on long-term earnings growth, in the short term there can be fluctuations based on investor psychology.
“Since the market was too negative in May-June of this year, it was expected that the market would recover by July and that growth would continue. This is the only reason why the sale of portfolio investors (REITs) stagnated In July, REITs were coming in and buying after nine months of selling, this was followed by an increasing number of purchases, meaning REITs recently added more than they sold over the past 15 days,” he explained.
“July saw a sharp decline in FII sales and closed with the flow slightly positive and there is a turnaround in August with a positive inflow. This change is based on a few assumptions which still need to be strengthened – we have exceeded the peak of inflation in the United States and The Fed is likely to become dovish after 2022, i.e. Fed Pivot,” said Kunal Valia, Chief Investment Officer – Listed Investments, Waterfield Advisors.
3. The worst of inflation behind us?
Rahul Shah, co-head of research at Equitymaster, said the rally stemmed from comments by Fed Chairman Jerome Powell that the pace of interest rate hikes could slow sooner than expected.
As you know, the US Fed has been raising interest rates quite aggressively over the past few months to keep inflation under control. “However, economists expect the pace of rate hikes to moderate in the coming months, which has bolstered sentiment on the street.”
4. Healthy first quarter earnings
“Additionally, earnings performance was better than expected as nearly 75% of S&P 500 companies reported earnings above estimates,” he said.
Notably, in Q1FY23, corporate earnings so far have been better than expected and no major weakness has been seen, raising concerns for investors at the start of the earnings season.
“Sector-wise, results were better than expected for BFSI, Chemical, FMCG, few metals and cement companies are encouraging the market for a new high. coupled with attractive valuations, helped the Sensex and Nifty benchmarks rise in a short period of time,” said Jitendra Upadhyay, Principal Equity Research Analyst, Bonanza Portfolio.
5. Clever: Technical View
Meanwhile, Nagaraj Shetti, Technical Research Analyst, HDFC Securities, said the Nifty’s short-term trend remains positive and a sustained move above the 17,550 levels could be seen as an upside break. of the fork and that could pull the Nifty to the next one. significant resistance at the 17800-17900 levels in the near term.