Mumbai, Sept. 7: European Central Bank (ECB) president Mario Draghi’s plan to buy bonds of troubled Euro-zone nations today sparked a global market rally and helped stocks on local bourses to post their biggest gain in two months. The benchmark Sensex soared 337 points to 17683.73 led by heavyweights such as Reliance Industries Ltd.
On Thursday, Draghi had announced plans to buy unlimited amount of bonds of nations such as Italy and Spain, thereby reducing the possibility of bad news coming from the region in the form of sovereign defaults. While this boosted sentiments globally, optimism in the markets that the US Federal Reserve could announce a third round of quantitative easing (QE3) next week just turbo-charged the rally.
Expectation of a QE3 was reaffirmed later in the day when data from the US showed that non-farm payrolls for the month of August rose lower than expected at 96,000.
“The US non-farm payroll data has become a key watch factor for entire global markets. The numbers printed at this data point would decide the necessity for QE3. This makes it a vital release in accordance with the conjecture that 123,000 jobs would have been created in the month of August. Thereby a print below 100,000 would impose the addition of stimulus in order to promote growth factors whereas a print above 200,000 would justify that signs of growth have been picking up which could deny the possibility of QE3,” a note from Mecklai Financial said.
If the global markets provided the booster dose for domestic stocks, market circles said that local factors also contributed to the strong showing today. Even as monsoon has picked up in the country in recent days, thereby bringing down the rain deficit, there are expectations of reform measures coming from the Union government. There is also an optimism that the Reserve Bank of India (RBI) may relax its policy instruments on September 17 to provide a fillip to growth.
Reflecting these factors, the BSE benchmark index opened on a higher note at 17575.79 and built on its gains. It hit an intra-day high of 17701.20 and thereafter ended at two-week high levels of 17683.73, up 337.46 points, or 1.95 per cent. This is the best single day performance since June 29 when the index rose by 439 points.
“The markets ended the penultimate day of the week stronger by about 2 per cent. The Indian as well as global markets were positive on the back of the bond buying decision announced by Mario Draghi… Monsoons have been buoyant and the shortfall is now only about 10 per cent, providing some relief on the inflation front,” said Dipen Shah, head of private client group research at Kotak Securities.
Broking circles said heavyweights such as RIL also played their part in the rally. The RIL counter surged 3 per cent to Rs 791 after brokerage CLSA said the underweight tag on RIL is over due to a variety of factors that include growth, benign consensus expectations, below-average valuations and buyback support.
The research house, which raised the target price on the stock to Rs 850 from Rs 790, added that RIL would benefit from reserve upgrades due to government approvals, rise in production and a higher gas price.
Meanwhile, gold tumbled below the Rs 32,000-level, losing Rs 390 per 10 gram in Delhi as it tracked prices on global markets. Traders said investors had started booking profits at existing high levels.