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Sensex above the 40,000 mark

Sensex’s benchmark BSE index broke and closed above the 40,000 mark on Thursday and held gains even on Friday. In the last six trading sessions, the Sensex rose 2,209 points or 5.8% and closed at a seven-month high of 40,182.67.

  • Following the Reserve Bank of India’s monetary policy announcement on Friday, where it kept the repurchase rate on hold with an accommodative stance, the Sensex gained more ground and rose more than 200 points, trading at 40,400. In his policy statement, the RBI governor said that several high-frequency indicators aim to ease contractions in various sectors of the economy.

What is driving the market rally?

  • Better-than-expected figures on various economic fronts fueled the rally. If the good vehicle sales figures in September were one, TCS reported a strong performance for the quarter ending in September and raised the share prices of major IT companies.
  • Electronic bills rose 10% in September and energy demand also saw double-digit growth.
  • A Credit Suisse report showed that rail freight in the last 10 days of September rose 19% and the pharmaceutical market grew 4.5% in September.
  • As all these numbers point to a better-than-expected rebound in the economy, equity markets reacted to the same.
  • Credit Suisse, in its report, said the faster-than-expected normalization has raised expectations that GDP growth forecasts for fiscal year 21 will now be revised upward.

Does this sound sustainable?

  • In its monetary policy statement, the Reserve Bank of India said that several high-frequency indicators point to easing contractions in various sectors of the economy and the emergence of growth impulses.
  • He said that the deep contractions of the first quarter of 2020-2021 have been left behind, and the rays of light are visible in the flattening of the load curve of active cases across the country.
  • Barring a second wave, India is prepared to ignore the deadly control of the virus and renew its appointment with its pre-COVID growth trajectory.
  • The drop in COVID-19 cases over the past week has been of great benefit to the markets. With the numbers dropping, foreclosure restrictions have been further relaxed and central regulations now allow almost all activity.
  • This is expected to further strengthen the recovery in economic activity across the country and help maintain momentum in equity markets.
  • However, investors should be careful when selecting stocks, as multiple companies can trade at high valuations.
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