Markets Bounce In Early Trade, Investors Relieved

After experiencing a sharp decline on Monday, the Indian stock market opened on a positive note on Tuesday, bringing relief to investors. The Nifty50 index at the National Stock Exchange (NSE) started the day at 24,189.85, up by 290.60 points or 1.21 per cent, while the BSE Sensex opened higher by 949.21 points or 1.21 per cent to trade at 79,708.61.

Sectoral indices, including Bank, Auto, Financial Services, FMCG, IT, Media, Metal, Pharma, PSU Bank, Private Bank, Realty, Healthcare, Consumer Durables, and Oil and Gas, all opened in the green.

On Monday, Foreign Institutional Investors (FIIs) sold net shares worth Rs 10,074 crore, while Domestic Institutional Investors (DIIs) were net buyers with investments totalling Rs 9,156 crore.

Global markets also showed signs of recovery, with sharp rebounds seen in Japanese and Korean markets, and US stock futures trading higher. The market's recent dip was attributed to fears of a potential recession in the USA.

Commenting on the situation, market expert Ajay Bagga said, "The risk-off sentiment was pervasive, and India saw an FPI cash equity net outflow number of more than Rs 10,000 crores. DIIs, in turn, bought most of this stock, providing a basis for India's relative outperformance on a day of global panic. U.S. Fed speakers provided some guidance that the Fed is not overreactive to one month's weak data, unlike the markets. This rules out an inter-meet emergency rate cut by the Fed, at least for now. We don't see U.S. macros deteriorating into a recession for the next two quarters at least."

Bagga further explained, "The last few days' sell-off has been due to a vicious circle set up by the BOJ rate hike and the Yen appreciation, leading to margin calls and panic liquidation. There is no fundamental deterioration backing this. Yes, the valuations of the AI beneficiaries are getting hit as the payback period for AI investments is turning out to be in decades rather than in quarters. However, there are many options for investors, including a high-growth Indian market. We expect the margin calls to work out over the next few days, and today's market rise will see overstretched investors reducing leverage."

Monday saw domestic equity indices experience a sharp drop, with the Sensex falling by 2,222.55 points, or 2.74 per cent, to 78,759.40, and the Nifty50 declining by 662.10 points, or 2.68 per cent, to 24,055.60. The recent all-time high of 25,078 reached on August 1 is now being viewed as a potential top reversal pattern, signalling a bearish short-term trend. The Nifty50's next support level is anticipated at around 23,625, with immediate resistance at 24,250.

In Asian markets, Tuesday saw a recovery, with Japan's Nikkei 225 rebounding by 10.5 per cent and South Korea's Kospi rising over 4 per cent. In the U.S., the stock market also experienced a significant plunge on Monday. The Dow Jones Industrial Average (DJIA) opened more than 1,000 points lower and ended the day down by 1,083.07 points, a decline of 2.79 per cent, settling at 38,654.19. The tech-heavy Nasdaq Composite Index saw an even sharper drop, losing 680.15 points, or 4.05 per cent, to reach 16,196.01, while the S&P 500 fell by 164.67 points, a decrease of 3.11 per cent, landing at 5,181.89.

Globally, markets are reacting to the triggering of the Sahm Rule on Friday, as US unemployment reached 4.3 per cent, predicting a potential recession. The Sahm Rule indicates a recession has started when the three-month moving average of the US unemployment rate is 0.5 percentage points or more above its lowest level during the previous 12 months.

Also Read: Sensex and Nifty Dive as Global Recession Jitters Shake Markets