Dalal Street on a high: Top 4 factors that fuelled 450-point rally in Sensex

NEW DELHI: The S&P BSE Sensex rallied over 450 points on Thursday, led by gains in ITC, ICICI Bank, Maruti Suzuki, SBI and Tata Motors.

The Nifty50 reclaimed its crucial support level at 8,200 supported by gains in realty, power, consumer durables, capital goods, banks and auto stocks.

Going by the buzz on Dalal Street, the following four factors could be fuelling the rally in the domestic market.

Strong handover from Wall Street: Asian markets hit fresh one-month highs after the S&P500 and the Dow Jones hit record intraday highs in overnight trade in the US markets, helped by gains in bank stocks. Investors are now focussed on President-elect Donald Trump’s pro-growth policies and whether that could lead to more aggressive rate hikes next year, said a report.

The Dow Jones industrial average index surged 297.84 points, or 1.55 per cent, to 19,549.62. The S&P500 index climbed 29.12 points, or 1.32 per cent, to 2,241. The Nasdaq Composite index advanced 60.76 points, or 1.14 per cent, to 5,393

Stimulus hopes from ECB: European Central Bank (ECB) President Mario Draghi is set to announce an extension of his quantitative easing (QE) for about six months. The European Central Bank will review its money policy later in the day. It would be followed by an ECB Press conference.

In its last policy review, the regional central bank had kept the interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility unchanged at zero per cent, 0.25 per cent and minus 0.40 per cent, respectively.

Lending rates falling: Even though the Reserve Bank of India (RBI) in a surprise move decided not to slash interest rates on Wednesday, but the transmission of rates has started. Various banks have already started cutting lending rates. A fall in lending rates is likely to spur demand and boost consumption.

The state-owned Canara Bank has taken the lead in reducing lending rates, even though the Reserve Bank of India (RBI) decided not to lower policy rates on Wednesday. The bank has cut its one-year marginal cost of fund based lending rate (MCLR) by 15 basis points to 9.15 from 9.30.

Bank of Baroda has pegged its one-year marginal cost of lending rates, the minimum rate at which it lends, at 9.05 per cent, down 20 basis points, while Bank of India has reduced rates by 5 basis points to 9.25 per cent.

Nifty50 eyes 8,250 level: The Nifty50 reclaimed its crucial resistance level of 8,200 on Thursday, which most analysts thought was acting as a crucial hurdle for the index. The index has also managed to break past its crucial 200-day SMA placed at the 8,190 level, which is a positive sign and could be due to short covering amid positive global cues.

For an index to trend higher it should close above this level else rangebound movement is likely to continue. MACD, which is one of the most effective momentum indicators that can be used to spot a change in the short-term trend of the market has already given a buy signal last week.

The Nifty50 registered a large bear candle on the charts in the previous session. It is critical for the index to sustain above the 8,055 level on the downside to prevent further damage. However, on the upside a break above the 8,250 level is likely to lift hopes for the bulls.

“The best possible scenario for next couple of weeks appears to be a range bound move between 7,916 and 8,250 levels. The bulls shall regain strength only on a close above 8250 level,” Mazhar Mohammad, Chief Strategist - Technical Research & Trading Advisory, Chartviewindia.in, told ETMarkets.com.