Multiple factors have contributed to this recovery:
Oversold Indicators
The biggest factors of course has been the fact that the market has been extremely oversold and multiple indicators were pointing towards a bounce. The Nifty also had a 10-day losing streak, the biggest on record.
Tariff Relief…At Least For Now
Another important factor has been any potential tariff relief. Donald Trump’s administration has granted a one-month exemption from tariffs to automakers compliant with the US-Mexico-Canada Agreement. With this, there is hope that these exemptions may apply to other sectors, including agricultural products as well.Of course, there is still no pushback on the overall tariffs imposed on Canada, Mexico and China. A surge in US equities overnight also contributed to the improved sentiment on the street.
Oil, Dollar Cools Off
Oil prices have continued to decline amidst these tariff uncertainties, OPEC+ planning to increase output from April and a rise in US inventories, coupled with weak demand. This resulted in Brent falling to the lowest level in six months, below $70 per barrel. Citi expects that to fall towards $60 per barrel.
A cool-off in oil prices has triggered a sharp rally in oil sensitives, including Oil Marketing Companies (OMCs) like HPCL, BPCL, Indian Oil, refiners like MRPL and Chennai Petro, along with paint companies like Asian Paints, which has been among the worst performing stocks on the Nifty.
Additionally, the tariff tantrums have also resulted in a sharp cool-off on the US Dollar, which fell to levels of 104, last seen in November last year. The decline in the Dollar, coupled with China reiterating its growth ambitions despite the looming tariff war with the US, has resulted in Metal stocks staging a sharp rebound. The Nifty Metal index is already up 8.4% this week, which puts the index on course for its best weekly performance in four years.
RBI’s Liquidity Push
The Reserve Bank of India recently has announced a slew of measures to ensure enough liquidity in the system. On Wednesday, India’s central bank announced a $10 billion buy-sell swap and an Open Market Purchase of bonds on March 12 and March 18, worth ₹1 lakh crore. The move, according to most analysts on the street, improves the situation for banks and NBFCs.
Brokerages Turn Constructive
Foreign brokerages appear to be turning constructive on the Nifty after the recent correction. Jefferies mentioned in its note that the Nifty valuations are now near its historical averages and usually, the index reverses from such levels both relatively and in absolute terms. The brokerage also expects FPI flows to reverse due to the sell-off in the US Dollar.
Similarly, BofA Securities turned constructive on the Nifty, setting a target of 25,000 on the index by the end of the year, implying a potential upside of 14% from current levels. The brokerage also has recommended buying 12 largecap stocks with upside potential ranging between 10% to 40%. However, it remains bearish on small and midcap stocks. You can read more on that here.
Despite this two-day recovery, Midcap and Smallcap stocks remain in a bear market, while the Nifty is down 15% from its peak.
