Indices rebound amid short covering ahead of expiry

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Indian equities rose a per cent on Wednesday after a late surge driven by short covering ahead of the monthly derivatives expiry.

The ​Sensex​ rose 689 points or 0.98 per cent to close at 71,060. The ​Nifty​ jumped 215 points or 1.01 per cent to close at 21,453, recovering more than 340 points from the early morning low of 21,137. The broader market rallied as well with the Nifty Midcap 100 and Nifty Smallcap 100 up 1.8 per cent and 1.7 per cent respectively.

Hindalco and Dr Reddys Labs were the top Nifty scrips, gaining 4 per cent each. Most of the beaten down sectors recovered, including IT, PSU banks, railways, metals, oil and gas, PSUs and media. Metal stocks gained on hopes that measures to boost the Chinese economy will support demand for metals as the country is the largest consumer of commodities globally.

“Sentiment turned buoyant following positive global cues, impressive quarter results and better than expected January PMI data,” said Siddhartha Khemka, Head-Retail Research, Motilal Oswal Financial Services. “Given monthly F&O expiry and long weekend ahead, traders would stay light especially in absence of any major positive trigger.”

Chinese impact

China’s central bank announced that the reserve requirement ratio for commercial banks will be reduced by 50 basis points from February 5 to boost economic growth. The move is expected to inject 1 trillion yuan ($140 billion) worth of liquidity into the market.

Vinod Nair, Head of Research, Geojit Financial Services, said: “The market rebounded from yesterday’s sell-off taking cues from global peers. The sentiment was reinforced by the PBOC’s 0.5 per cent cut in reserve ratio to boost growth and financial liquidity. However, overall sentiment is muted as concerns persist on FIIs selling due to premium valuations in India and below expectation Q3 earnings so far.”

Technically, the market has shown a bullish candle, but it failed to close above the 50 per cent retracement level of the sell-off seen on Tuesday, which is at 21,480, according to Shrikant Chouhan, Head-Equity Research, Kotak Securities.

“We believe this is a strong pullback from the recent sell-off between 21,750 and 21,137, and the market would remain weak with a negative bias until the Nifty crosses 21,750,” he said.

Asian peers traded mixed on Wednesday, with Hang Seng remaining the top gainer for second consecutive day. European indices were trading in the green. Investors would now await manufacturing PMI data from the US and UK later which would provide some direction to the market.