Key reasons why Sensex bounced back on Monday to rally 1,000 pts intra-day

Equity markets staged a strong turnaround on Monday after last week’s underperformance aided by stable sentiment across global equities.

The BSE Sensex surged 989 points in intra-day to hit a high of 60,834, before closing with a 721 points gain at 60,566 level. The Nifty touched a day’s high of 18,084 points as it reclaimed the 18,000 mark after Friday’s slump. The index ended 208 points higher at 18,015.

Friday’s correction saw a sharp short-covering on Monday as market put aside fears around the Covid-19 situation in China.

“A realisation has probably sunk into markets that the Covid-19 situation in China is not that serious as of now. Last week’s fall was more of a kneejerk reaction due to the anixety on the Street. We bounced back today and now it remains to be seen how the last week of the year closes keeping in mind the F&O expiry ahead. Expect choppiness and volatility to be a bit higher as we approach the expiry day. But there may not be a much deeper correction,” said Gaurang Shah, Head Investment Strategist, Geojit Financial Services.

As per Parth Nyati, Founder at Tradingo, Indian markets underperformed last week but other global markets didn’t react too much to the Covid-19 fears.

“The majority of the froth was removed from the system in Friday’s trading as many stocks fell precipitously, resulting in bargain buying at lower levels. Technically, the Nifty has reclaimed its 100-day moving average (DMA), but 18088, 18133, and 18200 are multiple hurdles on an immediate basis. Nifty has to cross its 50-DMA of 18200 to gain any meaningful strength, while 17850 will act as an immediate support,” Nyati said.

Here’s a brief rundown of factors that supported Monday’s rebound:

Global markets: US markets managed to gain up to 0.6 per cent on Friday, and the futures’ trade also hinted at a positive opening for Monday. The futures linked with S&P500, Dow and the Nasdaq were up to 0.6 per cent higher at the time of this report. In Asia, while most markets were closed on account of Christams, Nikkei in Japan and the Shenzhen index in China rose 0.65 per cent and 1.2 per cent, respectively.

Russia open to truce: President Vladimir Putin has reportedly said that Russia was open to negotiations over the war in Ukraine but blamed Kyiv for a lack of talks. Besides, as per reports, Russia is ready to resume gas supplies to Europe through the Yamal-Europe Pipeline, that were closed earlier this year amid the Ukraine war.

Hopes of normalcy in China: Rising Covid-19 cases have not punctured the festive spirit of the Chinese people. As per CNBC, the capital city Beijing has seen a firm rebound in social activity in the last few days after local authorities abruptly lifted many Covid-19 lockdowns early this month amid violent protests. This could be an early sign of the economy going back to normalcy, however, risks related to Covid-19 spread continue to linger.