Updated: October 9, 2020 12:35:05 pm
A man walks past the EEB building as the Sensex crossed the 40,000 mark, in Mumbai, on Thursday, October 8, 2020 (PTI Photo: Mitesh Bhuvad).
Benchmark Sensex on BSE crossed closed above the 40,000 mark on Thursday and has held onto earnings even on Friday. During the last six trading sessions, the Sensex has risen 2,209 points or 5.8 percent and has closed in more than seven months of 40,182.67 highs.
Following the Reserve Bank of India’s monetary policy announcement on Friday, where kept the repurchase rate on hold With an accommodative stance, the Sensex gained more ground and rose more than 200 points, trading at 40,400. In his policy statement, the RBI governor said that several high-frequency indicators point to easing of contractions in various sectors of the economy.
What is causing the market rebound?
Better-than-expected figures on various economic fronts have fueled the rally. If September’s strong vehicle sales figures were one, TCS announced strong performance for the quarter ending in September and pushed up the share prices of major IT companies. E-way bills were up 10 percent in September and energy demand has also seen double-digit growth. A report by Credit Suisse showed that the transport of goods by rail in the last 10 days of September increased 19% and the pharmaceutical market grew 4.5% in September.
As all of these numbers indicate a better-than-expected rebound in the economy, equity markets have responded to the same thing. Credit Suisse in its report said that a faster-than-expected normalization has led to the expectation that GDP growth expectations for fiscal year 21 may see an upward revision now.
Does it seem sustainable?
In its monetary policy statement, the Reserve Bank of India said that several high-frequency indicators point to a relaxation of contractions in various sectors of the economy and the emergence of growth impulses. He said that the deep contractions of the first quarter of 2020-21 have been left behind and that the rays of light are visible in the flattening of the load curve of active cases across the country.
Barring the occurrence of a second wave, India is ready to ignore the deadly clutches of the virus and renew its rendezvous with its pre-COVID growth trajectory.
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The decline in COVID-19 cases over the past week has been a huge positive for markets. With numbers on the decline, there has been further relaxation in lockdown restrictions and central regulations now allow almost all activities. This is expected to further strengthen the restoration of economic activities across the country and will help maintain momentum in the equity markets. Investors, however, should be careful when selecting stocks, as multiple companies can trade at expensive valuations.
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