Biggest market jump in a month adds Rs 3.4 trillion to investor wealth

1.4% jump comes on the back of easing recession fears, China policy support

Benchmark indices posted their biggest single-day gain in nearly a month as investors scaled back their bets around aggressive tightening by the Federal Reserve (Fed). China’s policy support for its ailing real estate sector further boosted sentiment.

Mirroring gains in the global markets, the Sensex rose 760 points, or 1.4 per cent, to close at 54,521. The Nifty finished at 16,278, with a gain of 229 points, or 1.43 per cent—most since June 21. IT and banking stocks led the advance. The market capitalisation of BSE-listed stocks increased by Rs 3.4 trillion and stood at Rs 255 trillion.

A better-than-expected US retail sales data and a drop in inflation expectations comforted investors about rate hikes. The long-term inflation expectations of US consumers declined in early July. A University of Michigan data showed that US consumers expect prices to rise at an annual rate of 2.8 per cent over the next five to 10 years, a decline from June's 3.1 per cent.

The US retail sales rebounded strongly in June, mitigating fears of an imminent recession. According to the US commerce department, retail sales rose 1 per cent in June. On a year-on-year basis, it rose 8.4 per cent.

Investors had priced a 100 basis point increase by the Fed after consumer inflation in the US hit a 40-year high of 9.1 per cent. But, with improved sales data and a fall in long-term inflation expectations, the fears of supersized rate hikes have been tempered.

Meanwhile, there were also news reports that Chinese regulators had urged banks to meet the financing needs of developers. The move from Chinese authorities comes after a wave of homeowners joined a country-wide mortgage boycott of unfinished houses.

"Markets are largely mirroring their global counterparts, especially the US, while domestic factors like macroeconomic data and earnings cause volatile swings in between," said Ajit Mishra, VP, Research, Religare Broking.

Despite the improved sentiment, the outlook for equity markets and the global economy remains gloomy.

Ceyla Pazarbasioglu, the International Monetary Fund (IMF's) director for strategy, policy and review, said that the agency would downgrade its economic forecast substantially in its next update. Pazarbasioglu was addressing a meeting of a Group of 20 finance ministers and central bank governors.

In its April report, the agency had downgraded its outlook for the global expansion this year to 3.6 per cent, from 4.4 per cent before the war in Ukraine.

Investors will likely stay cautious ahead of a European Central Bank policy meeting, and a scheduled resumption of Russian gas flows via the Nord Stream pipeline.

"On the Nifty, 16,487-16,514 band is the next resistance while the support shifts to 16,070-16,140. Positive global sentiment keeps buoying the Nifty, and hence one will have to watch them closely,” said Deepak Jasani, head of retail research, HDFC Securities.

The market breadth was strong, with 2,302 stocks advancing against 1,152 declines.