Stock Market India: Sensex, Nifty recover to rally on Monday

Indian equity benchmarks surged on Monday, stalling a two-session losing streak as global stocks attempted to recover from two weeks of losses on festive cheer, even as concerns lingered that continued policy tightening would trigger an economic recession and hit companies’ profits.

Hopes of a demand recovery in China helped boost sentiment after a shaky start in the Asian markets to the full final trading week of 2022.

The BSE Sensex index rose 468.38 points, or 0.76 per cent, to close at 61,806.19, and the broader NSE Nifty index climbed 151.45 points, or 0.83 per cent to end at 18,420.45.

“Inflation fears have already had an adverse impact on markets,” Astha Jain, Senior Research Analyst at Hem Securities, told Reuters, adding further impact due to inflation was unlikely.

Both benchmarks had crashed for the second straight session on Friday, driven by concerns about a potential global recession in response to hawkish remarks from major central banks.

The euphoria sparked by last week’s weaker-than-expected US inflation figures has subsided as central banks have made it clear they have no plans to cease their cycles of tightening monetary policy.

In the US, futures indicated a higher open for the S&P 500 and the tech-heavy Nasdaq 100, though both indexes are on course to end the month lower after rising in October and November. 

Europe’s Stoxx 600 index opened half a per cent higher. A benchmark for Asian equities began to decline for a third day, the longest losing sequence in nearly two months.

“A lot of factors point toward higher inflation going forward, which means central banks, especially the Fed, will continue to be extremely hawkish, probably more so than what the markets are pricing,” Saxo Bank Senior Strategist Charu Chanana told Bloomberg Television, adding she was also concerned “about what kind of earnings recession we will get next year.” 

Meanwhile, Morgan Stanley analysts warned that the coming earnings recession could be similar to the 2008/2009 downturn, while in 2023, “price declines for equities will be much worse than what most investors are expecting.”

Data last week accentuated recession worries after business surveys showed activity shrank in Europe, Japan, and the US.

The mood isn’t helped by softening economic data as we approach the end of the year, and markets are left wondering where to search for the upbeat feeling that has boosted US equities in the final two weeks of December 11 times in the past 15 years.

Wall Street shares fell on Friday on weak economic data that added to recession fears. The S&P 500 declined by 2 per cent. It has failed multiple times to trade above its 200-day moving average persistently and is down 20 per cent for the year.

“The Santa rally normally kicks in around mid-December on the back of festive cheer and new year optimism, the investment of any bonuses, low volumes and no capital raisings at this time of year,” Shane Oliver, strategist at AMP Capital, told Reuters.

“It has tended to be weaker or less reliable in years when the market is down year to date, though,” he added.