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A pedestrian wearing a protective mask walks past the Bombay Stock Exchange (BSE) building (Bloomberg)
A pedestrian wearing a protective mask walks past the Bombay Stock Exchange (BSE) building (Bloomberg)

Markets at 4.5-month high despite rapidly rising Covid-19 cases

Optimistic hope for vaccine is rallying the sentiments of investors in the equity market, while regional lockdowns and US-China relations still pose risks for the market

MUMBAI : Despite worries about rising number of coronavirus cases in India, markets climbed to 4.5-month high on Monday. The Nifty managed to close above the 11,000-mark with the 50-share index at 11,022.20, up 120.50 or 1.11%. The BSE Sensex was at 37,418.99, up 398.85 points or 1.08%.

Global shares were mostly mixed while mainland Chinese stocks surged as China maintained its benchmark lending rate for the third straight month.

“The earnings results declared so far have been positive, as the sectoral leaders, especially in the IT and banking sector, have emerged better than expected in a quarter that was considered to be a washout, in terms of business. These two indices were also the main gainers in today’s trade. Uptrend may continue but it will be stock specific and investors seem to be looking at the earnings commentary for further direction,"Vinod Nair, Head of Research at Geojit Financial Services said.

Despite rising coronavirus cases and geopolitical risks, Indian equity markets along with other Asian markets rallied in the last four weeks as investor sentiments were boosted by vaccine hopes. Foreign institutional investors (FIIs) are net sellers of Indian shares worth $437 million in July so far. Domestic institutional investors including mutual funds and insurance companies were net sellers of equities worth 3,761.36 crore in the month so far.

“After the sharp recovery in developed markets, the risk-on rally spilled over to EMs in the last few weeks. We expect the focus to now shift to rising coronavirus cases as well as on the success of vaccine development. Corporate earnings may see sharp cuts as expected, but investors will focus more on outlook commentary and the path to a recovery," said Credit Suisse Wealth Management, India.

India volatility index or VIX jumped 2.30% to close at 24.71 on Monday. VIX, often referred as fear index is indicative of investors expectations of markets movement forward.

According to Siddhartha Khemka, Head - Retail Research, Motilal Oswal Financial Services Ltd flaring US-China trade relations, persistent rise in virus cases and implementation of fresh lockdowns in parts of the country are few risks for equities.

“The earnings season so far has been good with heavyweights reporting better the expectations. Further the union health ministry statement that India's covid-19 fatality rate is progressively falling added to the positivity. However, global cues were mixed after early reports of a breakthrough in talks to secure an European Union recovery fund failed to outweigh global signs of coronavirus flare-ups and renewed lockdowns," Khemka added.

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