Indian benchmark indices BSE Sensex and NSE Nifty 50 surged over 2 per cent on Monday and investors turned wealthier by more than Rs 3 lakh crore in the first hour of trading. Equities rallied on the news of merger of Housing Finance Development Corporation Ltd (HDFC) with HDFC Bank. Reflecting bullish investor sentiments, the 30-share headline index Sensex surged over 1,500 points or 2.5 per cent to 60,845, driven by HDFC twins. Meanwhile, Nifty also reclaimed 18,100 for a while. The rally was largely aided by financial stocks as their index jumped over two per cent followed by oil & gas, power and capital goods which gained over a per cent each.

Here’s what pulled markets higher

HDFC-HDFC Bank Merger

Shares of HDFC and HDFC Bank rallied 15 per cent and 14% respectively on the BSE in intra-day trade today. Out of 410 points gain in Nifty in the morning, over 80%, i.e., 352 points were contributed by HDFC twins. “The mega-merger between HDFC ltd into the HDFC bank will enable value unlocking for HDFC bank to build a solid housing loan portfolio and play the housing cycle by enhancing the existing customer base. The merged entity could become the highest weightage single company in the Nifty 50 basket. Further, this merger enables confidence in the Indian economy and looks for a brighter long-term picture beyond the ongoing Russia-Ukraine conflict and the rising inflationary concerns,” said Naveen Kulkarni, Chief Investment Officer, Axis Securities.

Oil falls most in 2 years

Domestic equities got another boost as oil settled lower since members of the International Energy Agency (IEA) agreed to join in the largest-ever US oil reserves release. Both Brent and US crude benchmarks settled down around 13% in their biggest weekly falls in two years after US President Joe Biden announced the release on Thursday. Brent crude futures were down 32 cents, or 0.3%, at $104.39 a barrel, while US West Texas Intermediate (WTI) crude futures fell $1.01, or 1%, at $99.27.

Positive global cues

Markets across Asia were trading largely in the green with Hang Seng up over 1 per cent at 22,313.83 while South Korea’s Kospi added half a percent at 2,749.10. Japan’s Nikkei 225 was trading marginally in the green at 27,683.98. US markets including S&P 500 rose modestly to kick off the second quarter on Friday. The Dow Jones Industrial Average rose 139.92 points or 0.4 percent to 34,818.27, the S&P 500 gained 15.45 points or 0.34 percent to 4,545.86 and the Nasdaq Composite added 40.98 points or 0.29 percent to 14,261.50.

Expect further rally in market till 18,400 level

“India Volatility index (VIX) has definitely come down in the past few days and the market has also seen a rebound since then. We can consider this as a strong rebound and can expect further rally in the market till the levels of 18,400. We can say that merger did play an important role in today’s market rally but the bounce back that we have seen can be considered as a strong rally and the rally can further continue with a strong support near the level of 17,800. We can expect the rally till the levels of 18,400 and will act as resistance in the market. The key support levels will be near 17800,” said Likhita Chepa, Senior Research Analyst at CapitalVia Global Research.

Next leg of rally in the benchmark index Nifty will be driven by the BFSI space

“Today, India’s VIX fell further by 2.5% to 18 levels vs the long-term average of 22. We believe the next leg of the rally in the benchmark index will be driven by the BFSI space, as banking companies are likely to post solid Q4FY22 earnings, driven by sequential improvement in loan growth. Moreover, the improving asset quality trend will continue for the quarter, bringing further confidence to the space,” said Naveen Kulkarni, Chief Investment Officer, Axis Securities.

What should investors do?

Focus on picking up quality stocks

“Investors should adopt a defensive approach with the markets. Regardless of the rise today, the zone of 18000-18100 is a double top resistance for the markets. Apart from this, out of 410 points gain in NIFTY in the morning, over 80%, i.e., 352 points were contributed by HDFC twins. Investors should not chase the high beta names; instead, they should focus on picking up good quality, traditionally defensive pockets like IT, Pharma and FMCG with each decline that they might get,” Milan Vaishnav, CMT, MSTA, Consulting Technical Analyst and founder, Gemstone Equity Research & Advisory Services, told Financial Express Online.

Buy fundamentally strong shares

“We recommend clients to buy fundamentally strong shares from these positions and can accumulate further if any correction is observed in the near future. We have seen corrections FMCG sector which can bounce back with the increase in demand in the market and hence stocks like Hindustan Unilever (HUL) and Britannia can be expected to outperform the market in the near future. Another sector can be the financial sector and NBFCs can be the beneficiary in the rally so Bajaj Finance and Bajaj Finserv can be the stocks to watch out for,” said Likhita Chepa, Senior Research Analyst at CapitalVia Global Research.

(The stock recommendations in this story are by the respective research analysts and brokerage firms. Financial Express Online does not bear any responsibility for their investment advice. Capital markets investments are subject to rules and regulations. Please consult your investment advisor before investing.)