Sensex rockets over 900 points: Reasons driving investor sentiment

Bulls lifted the Indian equity markets on Thursday after the US Federal Reserve's (US Fed's) chairman Jerome Powell hinted at an eventual slowdown of rate hikes once inflation peaks out. The S&P BSE Sensex zoomed over 900 points in the intra-day trade, while the Nifty50 inched closed to 16,900-mark.

Index heavyweights, Bajaj Finance and Bajaj Finserv, jumped around 9 per cent each and contributed around a fifth of today's gains on the Sensex. Other heavyweights like Kotak Bank, Infosys, HDFC Bank, and Reliance Industries were the other contributors.

Broader markets, too, were firm as Nifty Midcap 100 and Nifty Smallcap 100 rose 0.9 per cent and 0.7 per cent, respectively. Sectorally, the Nifty IT, Nifty Metal, and Nifty Realty indices soared up to 2 per cent.

Analysts believe the US Fed's confidence about strong labor markets and dismissal of recession brought respite to the investors. "Through its commentary, the US Federal Reserve has made markets believe that this interest rate upcycle may not last long contrary to what was estimated before. This may have positive implications on equities globally," said Siddarth Bhamre, Head of Research at Religare Broking.

Here's a breakdown of what's driving the markets on Thursday:

Fed's rate hike in-line with estimates: In order to tame the hot inflation at four-decade high, the US Fed raised interest rates by 75 bps for the second straight month. The hike was in-line with estimates and was already priced in by the markets. Chairman Jerome Powell also brought respite to the investors after he hinted at an eventual slowdown of rate hikes once the economy stabilizes. Further, his comments dismissing chances of recession also brought cheer to the markets.

"With the US labor market strong, I do not think the US is currently in a recession and the reason is there are too many areas of the economy that are performing too well," Powell said.

Upbeat global sentiments: The US Fed Chair's comments dispersing recession fears and eventual slowdown of rate hikes triggered a sharp rally in the US markets on Wednesday. The tech-heavy NASDAQ Composite clocked its biggest single-day jump since April 2020, rising up to 4.06 per cent. The quarterly results from Microsoft and Alphabet also added to the positive sentiments. Dow Jones rose over 400 points to 1.3 per cent, whereas the S&P 500 climbed 2.6 per cent.

That apart, major markets in Asia-Pacific followed suit. Japan's Nikkei 225 climbed 0.2 per cent, Shanghai SE Composite advanced 0.5 per cent, and South Korea's Kospi jumped 0.6 per cent.

Upbeat corporate earnings: The early bird results of April-June quarter 2022 (Q1FY23) hinted at skewed profits due to higher input prices and inflation. However, corporate revenues continue to grow in a fast lane. The combined net profit of 231 early-bird companies was up 20.4 per cent year-on-year (YoY) in Q1FY23, down from 32 per cent YoY rise in Q4FY22. Banks and Reliance Industries together accounted for bulk of incremental growth in corporate earnings so far in Q1FY23. READ MORE

Moderation in FII outflows: In the past two weeks, foreign investors have refrained from selling Indian equities aggressively and are buying occasionally. After selling over Rs 2.1 trillion worth of equities so far this calendar year, FIIs are gradually making a comeback to the Indian markets. They have sold just Rs 1,368 crore worth of equities so far in July compared to Rs 50,203 crore in the previous month.

Analysts believe the worst phase may be getting over soon for foreign flows into domestic equities, and expect the foreign investors to return soon to emerging markets, including India, as the global central banks, especially the US Federal Reserve (US Fed), become less aggressive in hiking rates to tame inflation. Higher government spending: Analysts believe that the government's increased capex plan was boosting investor sentiments too.

"The focus towards 5G spectrum auctions, defence procurement, BPCL unit's $1.6 billion investment in Brazilian oil, were key factors that brought optimism in the markets," AK Prabhakar, head of research, IDBI Capital said.

On the second day of 5G spectrum auction, the government has raised another Rs 4,000 crore.