India markets explained: What is driving the Sensex up?

Over the last six trading sessions, the Sensex has risen by 2,209 points or 5.8 per cent and closed at over seven-month high of 40,182.67.

The benchmark Sensex at BSE crossed closed above the 40,000 mark on Thursday and has been holding on to the gains even on Friday. Over the last six trading sessions, the Sensex has risen by 2,209 points or 5.8 per cent and closed at over seven-month high of 40,182.67.

Following the monetary policy announcement by the Reserve Bank of India on Friday, where it kept the repo rate on hold with an accommodative stance, the Sensex gained more ground and was up by over 200 points, trading at 40,400. In its policy statement the RBI Governor said that several high-frequency indicators are pointing to the easing of contractions in various sectors of the economy.

What is leading to the market rally?

Better than expected numbers on various economic fronts has driven the rally. If the strong vehicle sales numbers for September was one, TCS announcing a strong performance for the quarter ended September lifted the stock prices of leading IT companies. The E-way bills jumped 10 per cent in September and the power demand too has witnessed a double-digit growth. A report prepared by Credit Suisse showed that rail freight in the last 10 days of September rose by 19 per cent and the Pharma market grew 4.5% in September.

As all these numbers indicate a better than expected uptick in the economy, the stock markets have been responding to the same. Credit Suisse in its report said that faster than expected normalisation has led to the expectation that FY’21 GDP growth expectations may see upward revision now.

Does it look sustainable?

In its monetary policy statement, the Reserve Bank of India said several high-frequency indicators are pointing to the easing of contractions in various sectors of the economy and the emergence of impulses of growth. It said that the deep contractions of Q1:2020-21 are behind us and silver linings are visible in the flattening of the active caseload curve across the country.

Barring the incidence of a second wave, India stands poised to shrug off the deathly grip of the virus and renew its tryst with its pre-COVID growth trajectory.

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The decline in COVID-19 cases over the last week has come as a big positive for the markets. With declining numbers, there has been further easing in lockdown restrictions and the central regulations now permit nearly all activities. This is expected to further provide strength to the restoration of economic activities across the country and will help sustain momentum in the stock markets. Investors, however, need to be careful with stock picking as a number of companies may be trading at expensive valuations.

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