Markets surge amid 'peak inflation' optimism, gain now 4% in 4 days

Sensex closes at highest level since June 6; Up 8% from CY22 lows

Markets advanced for a fourth day on Wednesday amid positive global cues on optimism that ‘peak inflation’ might have been reached and prices will moderate going ahead, providing more leeway for central banks on interest rates.

A sharp jump in the US markets on Tuesday, following strong corporate earnings, a rally in technology stocks and a retreat in the US dollar against major global currencies also boosted sentiment.
 

The Sensex rose as much as 863 points, or 1.6 per cent, during the day. It gave up some gains to finish at 55,398, up 630 points, or 1.2 per cent. The Nifty closed at 16,521, with a gain of 180 points, or 1.1 per cent. Both indices closed at their highest level since June 6.
 

Foreign portfolio investors (FPIs) bought shares worth Rs 1,781 crore on Wednesday, one of the highest daily tally in recent months. US bond yields dropped below 3 per cent on hopes that the worst of inflation is behind us. However, experts said it is a bit premature to make that call.
 

“Peak inflation is a good reason to pile into equities and other risk sentiment asset classes. I believe we could be near peak inflation, but any hopes that it is suddenly going to fall quickly are naïve, far more likely is that it stays elevated for quite some time to come,” said Jeffrey Halley, senior market analyst, Asia Pacific, Oanda.

In the past four trading sessions, the Sensex has gained nearly 4 per cent and from this year’s lows on June 17, they are up 8 per cent.
 

“The weakness in the dollar index is also helping generate a risk-on environment. There is a definite reduction in market volatility in the last couple of weeks, but one needs to be wary of risk emanating from Europe, especially with issues relating to the resumption of gas supplies to Europe from Russia and the corresponding effect on growth rates if the gas supply is not restored. We advise investors to gradually increase allocation to equity, especially since FII selling pressure has significantly ebbed in recent times,” said Naveen Kulkarni, chief investment officer, Axis Securities.
 

The central government on Wednesday eliminated a levy on gasoline exports and cut windfall taxes on other fuels. The rollback comes less than three weeks after these taxes were imposed. Reliance Industries rose 2.5 per cent and contributed close to a third of index gains.
 

The fall in crude oil prices over the last four weeks has also boosted sentiment. On Wednesday, the Brent crude traded around $ 110 per barrel, 10 per cent lower compared to levels seen a month ago.

The S&P 500, on Tuesday, posted its biggest one-day gain since June 24 amidst speculation that corporate earnings will hold up and Federal Reserve will avoid aggressive monetary tightening.

Analysts said the resilience shown by companies has also led traders to believe that the worst might be over for the equity markets.
 

However, cloudy economic growth outlook is leading to uncertainty among investors. The market breadth was mixed, with 1,880 stocks advancing against a decline in 1,459 stocks. The Nifty Midcap 100 and Nifty Smallcap 100 indices underperformed with gains of 0.2 per cent and 0.8 per cent, respectively.
 

A Bank of America (BofA) global fund manager survey revealed that allocation to equities has dropped to levels last seen in October 2008, and exposure to cash surged to the highest since 2001.