Major stock indices continued to rally on Tuesday even as market experts warned that the earnings of many companies could be hit by the havoc caused by the second wave of COVID.
The 30-share Sensex surged 789.70 points or 1.61 percent to close at 49,733.84, and the Nifty closed at 14,864.55, up 211.50 points or 1.44 percent.
The back-to-back rally has stumped most traders and fund managers, who were expecting the market to slide given the restrictions announced by many state governments trying to contain the spread of COVID-19.
The rebound is all the more surprising, given that foreign institutional investors have been net sellers of Indian equities this month.
Banks and financial services stocks led the Nifty higher, despite this segment of the economy being most vulnerable to the curbs announced by the various state governments.
Bajaj Finance was the star performer in the Nifty, rallying over 8 percent.
Kotak Mahindra Bank, Bajaj Finserv, Eicher Motors and IndusInd Bank were the other major gainers, gaining 4-6 percent.
Britannia Industries was the top loser in the Nifty, down 2 percent. HDFC Life Insurance, Divi's Laboratories, Nestle India and Hindalco Industries closed around 1 percent lower.
Despite the recent gains, there is widespread scepticism if Sensex and Nifty will be able to get past their record highs seen in February soon after the Budget.
“I do not see the market running away, there is a lot of headwinds right now,” Shridhar Sivaram of Enam Holdings told CNBC-TV18, adding that earnings downgrades were likely.
He said there was likely to be a ‘time’ correction rather than a ‘price’ correction. In a time correction, prices stagnate without falling much.
“The market may not have corrected much but it is also struggling to get past its earlier highs,” he said.
“Therefore, there will be a time correction and it will depend on how the US market behaves; if we see a correction there we will see a correction in other emerging markets too,” he said.
Global investment bank Citi’s research arm has cut India’s GDP estimate for FY22 by 50 basis points and said there was a risk of another 50 basis point reduction.
“At this moment we are only looking at the impact to be contained in the first quarter, but if it spreads to the second quarter, we might need sharper GDP downgrades,” Samiran Chakraborty said in an interview to CNBC-TV18.
Despite multiple sell-offs, benchmark indices are way above the lows seen in the last week of January. That is giving confidence to a lot of market players who feel the market is likely to remain rangebound for a while with minimal possibility of a breakout on either sides.
“As of now, I am worried about the earnings momentum and slowing growth because of the restrictions that have been imposed,” Ashwini Agarwal of Ashmore Investment told CNBC-TV18.
“However, broadly I do not have a significant upside or a downside view on the market but we continue to look for opportunities,” said Agarwal.
Still, earnings downgrades could trigger extreme reactions in stocks that have run up a fair bit over the last few months, some brokers have warned.