Nifty, Sensex See Relief Rally After Monday’s Crash Due To HMPV Fears - Know What Investors Should Do

Indian stock markets recovered marginally from the decline seen in Monday’s trade on Tuesday, January 7 as the benchmark indices Sensex and Nifty opened in the green at 78,019.8 and 23,679.9 levels on Tuesday. The benchmark indices also proceeded to sustain the recovery and closed in the green. Earlier on Monday the Nifty 50 index closed 1.6 per cent lower at 23,616 points, and the Sensex fell 1.59 per cent to 77,964 levels as reports of the Human Metapneumovirus (HMPV) outbreak in China emerged.

The broader market indices also turned bearish as the Nifty Smallcap 100 index and the Nifty Midcap 100 index closed in the red, down by 3.2 per cent and 2.7 per cent, respectively. Key sectoral indices such as the Nifty PSU Bank, Nifty Metal, Nifty Energy, Nifty Realty, and Nifty Media also declined between 2.51 per cent and 4 per cent.

Why Did Markets Decline In Monday’s Trade?

Nilesh Jain the Vice President, Head Derivatives and Technical research at Centrum Broking Ltd told Outlook Money that the decline seen in the markets was caused by an overreaction to the reports related to a rise in the cases of the HMPV virus in China. However, the markets experienced a ‘relief rally’ following an advisory issued by the Union Ministry of Health which stated that there is no cause for concern for the public from HMPV.

“Yesterday, the market overreacted, leading to a sharp decline. Today, however, we've experienced a relief rally following clarifications on HMPV cases,” Jain said.

What Should Investors Do?

The broader market indices such as the Nifty Smallcap 100 and Nifty Midcap 100 index posted a recovery in Tuesday’s session closing 1.35 per cent and 0.89 per cent higher respectively. Additionally, all sectoral indices also recovered from yesterday’s crash and closed in the green except the Nifty IT which closed lower by 0.68 per cent. Key sectoral indices such as the Nifty Oil & Gas and Nifty Metal closed higher by 1.64 per cent and 1.24 per cent respectively.

Jain told Outlook Money that the recovery seen in the markets is an example of a ‘pullback’ which is common after a steep drop as seen in Monday’s session. However, he added that investors should exercise caution while taking aggressive long positions.

“While this pullback is common after such a steep drop, the indices are still not out of the woods, and caution is advised when taking aggressive long positions,” Jain said.

Jain added that the market crash seen in February 2020 was an unprecedented event and such a steep decline may not happen again. However, if such a decline happens again, it could be a good opportunity for buying quality stocks.

“The market crash in early 2020 was an unprecedented event, and markets typically react sharply to unforeseen shocks. While we may not see such steep declines again even if the market falls due to similar news, it could present a good buying opportunity for quality stocks,” Jain said.

How Markets Are Likely To Fare In Coming Days?

The benchmark indices sustained the recovery and closed in the green, with the Sensex closing at 78,199.11 levels, up by 234.12 points or 0.3 per cent. The Nifty 50 index closed at 23,707.9, up by 91.85 points or 0.39 per cent.

Jain projected that markets are likely to face resistance at higher levels if the 23,460 level is breached, the additional pressure is likely to drag the 50-share benchmark index lower towards the 23,300 mark.

“The markets are likely to face resistance at higher levels. The Nifty has crucial support at 23,460, which was the swing low from the previous month. If this level is breached, we could see additional pressure pushing the index towards 23,300,” Jain said.

In an alternate scenario, if the Nifty manages to reclaim the 24,000 level, a short covering rally is likely to propel it towards the 24,400 level. However, Jain added a cooling off in the volatility levels is required for the market to turn bullish again.

“On the other hand, if the Nifty manages to reclaim 24,000, a short-covering rally could propel it towards 24,400. The volatility index is currently elevated near 15, which raises concerns, as it needs to cool off for the bulls to regain control,” Jain told Outlook Money.