Three Reasons Why Sensex Gained Over 600 Points Today

After a volatile first half, Indian stock markets advanced sharply in afternoon trade on Thursday, to close the day higher by over 1.7%. The S&P BSE Sensex jumped 637 points to 37,327 points, while the Nifty reclaimed the 11,000 mark, rising 177 points, or 1.6%, to 11,032.45. All the sectoral indices closed in the green, indicating at buying across sectors. Here are the three key reasons behind the run-up in equity markets today:

Possible roll-back of FPI surcharge: The Sensex bounced back on media reports that said the government was considering rolling back the recently imposed higher tax on foreign portfolio investors (FPIs) in wake of the ongoing market turbulence. Last week, senior bureaucrats in the prime minister’s office (PMO) met top finance ministry officials to discuss the FPI surcharge.

The introduction of the surcharge on higher income brackets announced in the Union Budget 2019 by Finance minister Nirmala Sitharaman has led to a brisk selloff by FPIs. The average market capitalisation of BSE-listed companies fell from Rs 151.35 lakh crore on the Budget Day, 5 July, to Rs 138.37 lakh crore on 5 August, wiping out Rs 12.98 lakh crore of investor wealth in one month.

Morgan Stanley sees Sensex at 45,000 by June 2020: Despite the recent selloff, Morgan Stanley has maintained its base case scenario of 45,000 on the Sensex by June 2020, and a bull case of 50,000. The global investment bank said that Indian markets could be nearing a bottom. “We are getting to a bottom in share prices, as our valuation and sentiment indicators suggest, but risks remain on the horizon for the real economy and a slowing global economy,” Morgan Stanley said in a report. “The risk-to-reward ratio favours buying equities, but a V-shaped recovery in stocks depends on the actions of policymakers... Investors with a bit of patience will likely be rewarded well in the next 12 months.”

Positive global cues: European and Asian stock bourses rallied on Thursday, after upbeat Chinese trade data soothed investors’ nerves. Europe’s benchmark Stoxx 600 opened 1% higher, with Germany’s Dax up 0.9% and France’s CAC 40 adding 1.2%. London’s FTSE 100 rose 0.6%. In Asia, China’s CSI 300 index of Shanghai and Shenzhen-listed names added 1.3%, while Hong Kong’s Hang Seng index was up 0.7%. Trade data released on Thursday by China showed exports unexpectedly ticked up in July.