The bulls came charging back on Dalal Street this morning after the 2-week US-Iran ceasefire was announced, April 8. After days of volatility, the markets have moved firmly into the green, with the Sensex jumping over 2,900 points and the Nifty climbing above 23,950.
The rally is broad-based, with most sectors participating. The Nifty small and midcap is also trading up over 3.5% each. The sudden surge is not driven by just one factor. Instead, it includes a mix of global and domestic cues has come together to lift markets.
Nilesh Shah, MD Kotak Mahindra AMC highlighted that “From India point of view safety of 9 million Indians working in Middle East, Availability of energy with opening of Hormuz strait like pre war, Price of energy nearer to pre war prices and remittance flows from Middle East at the run rate of pre war is critical. Markets will see a relief rally with short covering but will continue to react to events. There could be many slips between cup and the lip.”
5 key reasons why the market is rallying today
From easing geopolitical tension to a sharp fall in crude oil prices, let’s take a look at the key factors why markets are up in today’s trade.
1 US-Iran ceasefire brings cheer across global markets
Among many factors, one of the biggest is the sudden improvement in global risk sentiment. In the latest move, the United States and Iran have agreed to a temporary two-week ceasefire has helped calm nerves across financial markets.
This development comes at a time when tension across West Asia were keeping investors on edge. With this pause, it has reduced fears of further escalation, especially around the Strait of Hormuz – a key route for global oil supply.
2 Sectoral rally adds strength
On the sectoral front, Nifty Auto and Realty indices are up over 6% each, while Consumer Durables has gained more than 4%.
FMCG stocks are also higher by around 2%.
Financial stocks are seeing strong traction, while Oil & Gas is trading higher by over 2%. Metal and Media stocks are also seeing notable gains.
Meanwhile, IT and Pharma indices are in the green as well, though with relatively modest gains compared to other sectors.
3 Global markets join the rally
Apart from the Indian markets, the global markets have also reacted strongly to the ceasefire news.
Asian markets too have seen a sharp upmove rising between 4-6%. The Nikkei has jumped 5% while the key South Korean Index soared 6%. The Mainland Chinese and Hing Kong markets are up between 2-3% in intra-day trade as well.
4 Crude oil nosedives over 13%
Another major factor adding to the rally is the sharp plunge in crude oil prices.
After staying elevated in recent weeks, oil prices have dropped below the $100 per barrel mark. Furthermore, the Brent crude fell close to $95.
For India, this is a key positive. As a country that imports a large portion of its oil, lower crude prices help reduce inflation pressure and improve the overall economic outlook.
5 Fear Index crashes 20%
The VIX or the Volatility Index that measures fear across investors have also seen a sharp downward spiral. It has plummeted 20% intra-day today.
Why market sentiment has turned positive
Dr. VK Vijayakumar, Chief Investment Strategist, Geojit Investments, “The 2-week ceasefire between the US and Iran has dramatically altered the near-term market scenario. The crash in Brent crude to $ 95 following the ceasefire will again turn the market bullish. This ceasefire, particularly the agreed reopening of Hormuz Strait, will embolden the bulls to charge again, aided by the fair market valuations.
RBI, aided by the crash in crude, will opt for a hold in rates today. The policy stance will continue to be neutral. The upside risk to inflation and the downside risk to growth can now be managed well. Rupee will strengthen and this may even force the FPIs to turn buyers; at least they will have to cease the sustained selling, which will become irrational in the present context,” he added.
What it means for investors
The current rally is strong. It is largely driven by external developments As of now, the easing of geopolitical tension and softer crude prices have brought relief. Nilesh Shah, MD Kotak Mahindra AMC advised investors to pay attention to asset allocation, “Investors should follow their dharma of asset allocation. Don’t chase momentum swinging by events. Be a disciplined investor catching a falling knife.”