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Four factors behind Sensex's 428 point rally

Majority of Asian peers were trading higher following positive global developments.

ETMarkets.com|
Updated: Dec 13, 2019, 04.07 PM IST
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Sensex zooms 428 points; Nifty ends near 12,100
Sensex zooms 428 points; Nifty ends near 12,100
NEW DELHI: The benchmark equity index BSE Sensex advanced 428 points in Friday's session following firm global cues and buying in select blue chips counters. Vedanta, Tata Motors and YES Bank were up over 3.50 per cent each. The 50-share Nifty ended near the 12,100 mark.

Here are the top reasons why Dalal Street was on a roll:

Easing trade tensions
Global equity market got a leg up after reports that the Trump administration and China are close to finalising a modest trade agreement that would suspend tariffs that are set to kick in on Sunday, de-escalating their 17-month trade war.

Trump took to Twitter early Thursday to declare: “Getting VERY close to a BIG DEAL with China. They want it, and so do we!”

UK election
Boris Johnson won as British prime minister with a landslide majority in the country’s general elections, a victory that will end the uncertainty over Brexit and will help him to take UK out of the European Union by the end of next month. As a result, domestic companies which earn significant revenues from the UK market hogged limelight in Friday’s trade. Shares of Tata Motors, which earns around 16.30 per cent revenue from UK, were up nearly 3 per cent on BSE. Tata Communications traded nearly 2 per cent up at Rs 398.25.

Firm Asian markets
Majority of Asian peers ended higher following positive global developments. Hang Seng, Nikkei and Shanghai also gained up to 2.50 per cent in Friday’s trade.

Technical reason
In the latest Golden Cross, the 50-day moving average of the MSCI EM Index has reached 1,038 compared with the 200-day moving average of 1,033, according to the Bloomberg data. In March, the EM index had gained nearly 6 per cent after forming a Golden Cross pattern before topping out. The Sensex and Nifty50 too reported the Golden Cross formation about a fortnight ago. A Golden Cross occurs when the short-term moving average crosses above the long-term average. It is perceived as a bullish technical pattern. Besides, Nifty 50’s relative strength index (RSI) is currently 53. RSI is a measure of magnitude of the recent price change. RSI of more than 70 is considered as overbought territory, while sub-30 is oversold. Currently, there are just four stocks in the Nifty 50 which trade above 70 RSI.

Expert Take:
“There are a couple of reasons behind today's rally. Not only Boris Johnson getting the majority that augments smooth Brexit expectations, the trade war is also going to end. That is helping the market sentiments,” said Sanjeev Hota, Vice President - Head of Research at Sharekhan.

“One of the key reason, why US China deals have not worked is due to China not fulfilling its obligation for importing farm products from US. We believe the new agreement will have provisions for automatic roll back of tariff cuts if the other party does not fulfil its obligations. Hence, the chances of this deal going though are better than earlier efforts. From a global standpoints, it’s a positive news for commodities and equity markets,” Abhimanyu Sofat, Head of Research, IIFL Securities said.
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