The BSE Sensex jumped over 500 points on Friday, while the 50-share Nifty advanced 150 points or nearly 1.8 per cent to edge over 8,500. Markets are now having composed for their biggest gain this month. The rebound in stock markets comes after days of sustained selling.
Here’s what is driving markets higher today
1) The calmness in the forex markets bolstered sentiments in equities, analysts say. The rupee, which had weakened from 63.87 per dollar on Monday to 65.25 per dollar yesterday, traded on a flat note today. The rupee has been falling sharply tracking the devaluation of yuan, which is down over 4 per cent since Tuesday.
2) The Chinese currency also traded on a firmer note today, supporting emerging market currencies. Comments by the People’s Bank of China, which on Thursday said that there was no reason for the yuan to fall further, helped calm investors, analysts said.
3) The calmness on the currency front helped metal stocks, which have been the biggest drag on markets this week. The sub-index on metal stocks traded higher today after falling more than 10 per cent this week.
4) Rising hopes of a rate cut have also been driving stocks higher, analysts said. Chances of a rate cut rose after wholesale inflation fell at a faster-than-expected annual rate of 4.05 per cent in July. WPI inflation is now at a decade-low according to Reuters data. Some analysts expect the RBI to cut rates before its September policy. The Bank Nifty, the index of big banking stocks, outperformed the broader markets. Other rate sensitive sectors – auto and realty – also saw buying interest.
5) Technical analysts attributed the rebound to short-covering, a phenomena where traders buy stocks that have been sold short. Anil Manghnani of Modern Shares and Stock Brokers said 8,300 is a major support for markets.