Tezzbuzz Desk – After several consecutive days of decline, a strong recovery was seen on Thursday, August 20 in the Indian stock market. Both Sensex and Nifty closed with gains amid positive signals from the global market and buying by foreign investors. The 30-share Sensex closed at 77,537.72, up 628 points or 0.82 percent. At the same time, Nifty 50 increased by 154 points or 0.64 percent and closed at the level of 24,231.85.
The market boom was not limited only to big stocks. Nifty Midcap 150 index recorded a gain of 0.36 percent and Nifty Smallcap 250 index recorded a gain of 0.58 percent. The total market cap of companies listed on BSE increased from around Rs 488.70 lakh crore in the last trading session to more than Rs 491 lakh crore. That means investors' wealth increased by about Rs 2.75 lakh crore in a single trading day.
The biggest reason behind this rise is believed to be the short covering in the market after the recent fall. Till Wednesday, Nifty had fallen for seven consecutive trading sessions. During this period, Nifty had fallen by about 2 percent. Whereas Sensex remained weak for four consecutive sessions and fell by about 1.5 percent. Due to continuous decline, the market had reached the oversold zone. In such a situation, a technical bounce was seen in the market due to short positions being covered by short term traders. According to VK Vijayakumar, Chief Investment Strategist of Geojit Investments, after continuous decline, the market seemed ready for short term reversal. Oversold conditions and short covering helped the market gain momentum.
The second positive sign for the market was the fall in the US dollar and bond yields. A stronger dollar and a rise in US bond yields generally increase pressure for foreign capital to move out of emerging markets. In such a situation, the Indian stock market got relief from the softening of the dollar index and 10-year American bond yield. On August 19, the dollar index had fallen by 0.83 percent. During the same period, the 10-year American bond yield also came down. During trading on August 20, a further decline was seen in the American 10-year bond yield. This reduced some of the concerns regarding foreign investment in Indian equities.
The third major reason for the rise in the market was the buying by foreign portfolio investors i.e. FPI. According to available data, on Wednesday, foreign investors bought Indian shares worth about Rs 408 crore in the cash segment. So far in August, purchases by foreign investors have been stronger than in July. According to NSDL data, after buying shares worth about Rs 20,200 crore in July, till August 19, FPIs had bought Indian shares worth about Rs 23,320 crore. Despite the rise in the market, it is important for investors to remain cautious in the future. Global markets, crude oil prices, direction of US interest rates and attitude of foreign investors can affect market movements. However, Thursday's rise has definitely given a big relief to the investors troubled by the continuous decline.