Friday was a case of Dalal Street coming alive. A dip in oil and some good will on the US-Iran front were behind the heaviest one-day gains in more than 60 days. You had the NSE Nifty up 461 points, or 2%, to 23,622.9, and the BSE Sensex moving 1,695 to 75,527.95, a 2.3% jump.
There is more to this than a headline number. For the week, both were in the green by as much as 1.7%, which is a way of putting an end to the last two weeks of losses and showing that risk appetite is back in play, not just for the heavyweights.
Why a softer oil price resets the playbook
Brent crude was down more than 5% on Friday, under $90 a barrel for the first time in a quarter. By evening, August futures were at $88.3, 2.4% off the day before, and some of the market’s recent tension was let out.
Shrikant Chouhan of Kotak Securities puts it down to the mood around a possible fix in West Asia. That has been the engine for equities. When you have cheaper fuel, you don’t have to worry as much about your margins or inflation, and the domestic cyclicals can have their way.
Dharmesh Shah from ICICI Securities sees the lower crude as a plus for the likes of OMCs, aviation, paints and autos in the days to come. They are the ones where energy costs and what people want to buy make all the difference.
Indices broaden out as midcaps, smallcaps lead
If you look past the top line, the move was anything but one-sided. The Nifty Midcap 150 and Small-cap 250 were up 2.4% and 2.6% respectively, leaving the large-caps in the dust. On the BSE side, 3,155 stocks made money to 1,119 that didn’t, out of 4,422 in all.
Shah points out that the Nifty 50 has now put its 20-day moving average of 23,500 in the rear-view mirror after being stymied there more than once. It’s a sign of better times ahead, maybe even 24,300, with 23,100 as the floor.
Volatility cools as risk appetite returns
The VIX in India was 5.7% lower at 14.72, for a more tranquil environment. Over the last five days it has given up 13.3%, in step with the kind of risk-on stance you see in the market these days.
Global cues tilt supportive, but deal risks remain
You could tell from the rest of Asia too; the screens were as green as India’s.
The numbers from across the region put it in perspective: up 2.8% in Japan, 4.6% in South Korea, 2.4% in Taiwan, 1.9% in Hong Kong and a 1.1% climb in China. Over in Europe, you could see the effect of some energy-side relief on risk assets as the Stoxx 600 was 1.2% in the green at press time.
Much of the global mood lifted on the back of Donald Trump’s word on Thursday that a deal to put an end to the West Asia trouble and get the Strait of Hormuz open for business might be put to paper by the weekend. Iran, for its part, has been more circumspect, saying no final call has been made, which is enough to keep a lid on any talk of a quick fix and leave some event risk in the air.
You can read the flows for what they are. While there was some caution from abroad with foreign portfolio investors as net sellers of Rs 1,082 crore, domestic institutions were on the other side of the table, putting in for Rs 5,341 crore. It’s a sign of home-grown support for the move higher.
Then there is Chouhan’s take on the Strait of Hormuz: “It will be key,” he says. “If we see it open, we could have oil under $80.” On the Nifty, he sees 24,000 as the first wall of resistance if it can hold above 23,500.
What this means for how the market is set up
Don’t mistake Friday’s pop for simple momentum. It’s more of a macro risk recalculation, where you have energy, supply lines and geopolitics all coming to bear on corporate margins. With the price of crude in retreat, money has been making its way into India’s domestic story and mid-cap beta.
Sham Chandak of Elios Financial Services puts it like this: a war’s end would let the supply chains and Indian equities have some room to breathe. He also points to a rise in FCNR deposits and the off-chance of India being added to the Bloomberg Bond Index as things that can put some steadiness back in the forex.
Volatility and breadth have made the case for being a bit more aggressive on risk. But it’s still an event-driven tape. Shah’s technicals have 24,300 in view if there is any follow-up, with 23,100 as the floor for any pullback.
So what are traders looking at?
– Any headway in the West Asia talks and the Strait of Hormuz.
– Where Brent is headed; sub-$80 is the mark if the Strait reopens.
– How the likes of OMCs, aviation, paint and auto perform.
– The Nifty: 23,500, 24,000, 24,300 on the upside, 23,100 for support.
The bottom line
India’s market has had its best day since April 8, driven by a break in crude and some diplomacy that has taken the edge off. With DIIs mopping up FPI selling and the VIX in check, the risk equation has changed.
Now it comes down to whether the talking turns to doing. If it does, you could see the run continue on the back of cheaper oil and calmer waters. If not, 23,500 is where the bulls will have to show their mettle.
