China’s monthly purchasing managers’ index for the service sector rose for the first time in four months. The PMI came in at 55 points for May, compared to 44 in April. Any figure above 50 means that the sector is growing. Analysts said the rebound in economies would be swift compared to earlier recessions, as both governments and central banks are pumping vast amounts of stimulus. The Indian government, too, has pledged to take more stimulus measures.
Lockdown easing in India, the timely onset of monsoon, and forecasts of adequate rainfall also cheered investors. The Indian government on Saturday came up with a three-phased plan to ease the three-month lockdown. According to the plan, almost all economic activities will resume outside of containment zones.
“Favourable global cues, expectations of a good monsoon, and the hope that things will slowly get back to normal, all played a part in this relief rally. In spite of the optimism, the economic data served as a gentle reminder and showed that there was a sharp contraction in business activity in May due to the lockdown,” said Vinod Nair, head of research, Geojit Financial Services.
India’s meteorological department had predicted the rainfall to be about 102 per cent of the long-period average. Analysts said a normal monsoon would mitigate the economic impact of the lockdown on the Indian economy. Monsoons are significant, as most of India’s rainfall occurs during this period and plays a huge role in the farm output and rural demand.
However, some market players expressed concerns that the jubilation over stimulus packages may not be sustainable, and said that the easing of the lockdown is not a major positive as the top-15 cities are still under some form of lockdown. A large portion of economic activity happens in these cities.
“A fresh bout of unknown negatives can puncture the current sentiment. Also, a reality check about the level of the market versus the economic conditions may induce some profit-taking. Globally, if the tide turns downward in equity markets
because of geopolitical or financial reasons, then we may see risk-off trade in India resulting in a correction,” said Deepak Jasani, head of retail research, HDFC Securities.
The market breadth was positive, with 1,658 stocks advancing and 860 stocks declining on the BSE. Almost two-thirds of the Sensex
components ended the session with gains. Mahindra & Mahindra was the best-performing stock and rose 5 per cent. Thirteen of the 19 sectoral indices of the BSE ended the session with gains. Realty and banking stocks rallied the most, and their sectoral indices rose 3.1 percent and 2.1 per cent, respectively.
Business Standard has always strived hard to provide up-to-date information and commentary on developments that are of interest to you and have wider political and economic implications for the country and the world. Your encouragement and constant feedback on how to improve our offering have only made our resolve and commitment to these ideals stronger. Even during these difficult times arising out of Covid-19, we continue to remain committed to keeping you informed and updated with credible news, authoritative views and incisive commentary on topical issues of relevance.
We, however, have a request.
As we battle the economic impact of the pandemic, we need your support even more, so that we can continue to offer you more quality content. Our subscription model has seen an encouraging response from many of you, who have subscribed to our online content. More subscription to our online content can only help us achieve the goals of offering you even better and more relevant content. We believe in free, fair and credible journalism. Your support through more subscriptions can help us practise the journalism to which we are committed.
Support quality journalism and subscribe to Business Standard.