Indices back to winning ways, close 2.3% up riding IT surge

Mumbai: Indian stock indices bounced back and ended up 2.3% on Friday after recording their worst fall in four months in the previous session led by gains in IT stocks.

However, they still ended down 3.7% for the week as global market sentiment was sour on US Federal Reserve’s comments on weaker-than-expected economic recovery and increase in fresh Covid-19 cases in the developed markets.

The Sensex jumped 835 points, or 2.3%, to close at 37,388.66 and the Nifty notched up gains of 244.70 points, or 2.3%, to close at 11050.25.

The information technology or IT index jumped 3.6% after the release of quarterly numbers by Accenture. Although Accenture missed sales estimates, analysts said resilient order book and strength in outsourcing gave comfort to investors about the sector’s prospects. HCL Technologies soared 5%, TCS gained 3.9% and Infosys jumped 3.7%.
Analysts believe this relief rally is unlikely to sustain as the market remains worried about the rising number of Covid cases in India and globally, with lessening hope of a swift recovery in the economy.

“I keep hearing that there is disconnect between the economy and markets and markets have been retracing that. The fear is that recovery in the banking system would be delayed, so there has been a reappraisal of the recovery process,” said Raamdeo Agrawal, chairman, Motilal Oswal Financial Services.

“There are a lot of issues in the economy. The stronger and bigger companies are doing well but weaker, smaller and leveraged companies are having a tough time,” said Agrawal.

When the economy comes back on track in 2021-22, hopefully, the competition for the larger companies will be far less.

“That is assumed to be a K-shaped recovery,” said Agrawal.

A section of the market earlier was betting on a swifter recovery but a surge in positive virus cases has put a dampener on that hope.

Meanwhile, the decline in benchmark indices from recent highs has put the index on a weak wicket on technical charts.
The Nifty ended the September derivatives series on Thursday with a 6% decline.

“Going ahead, we expect the Nifty to remain under pressure while highs can be utilised for creating short positions. The October series has started with just 85 lakh shares, which is one of the lowest open interest in the Nifty historically suggesting long liquidation,” said ICICIdirect in a note.

“On the options front, the Nifty has a major call base at the 11200 strike, which is likely to remain an immediate hurdle for the coming weekly settlement. We expect the Nifty to trade with a negative bias below these levels,” said ICICIdirect.