10 reasons why Sensex has gained over 400 points

The BSE Sensex soared over 400 points on the back of favourable global cues. This was the biggest gain for the Sensex since January 03, 2012, when the BSE benchmark had gained 421 points.

Here are the reasons for the sharp rise in equities today:

1) Interest rates may go down: Most economists polled by Reuters expect the Reserve Bank of India (RBI) to cut interest rates at its policy review later this month, driven by dismal economic data and falling oil prices. Rate sensitive stocks like banks, autos and realty were among the top gainer in markets today.

2) Technical rebound: Indian markets have been oversold. There is an under-ownership of equities. Technical analysts say this is a pullback rally and may not last.

3) Limited downsides: Most analysts say markets have fallen enough and there is little room for further downsides.

"The Nifty is trading at 4,900 levels and the maximum downsides are 5-10 per cent," Gaurang Shah of Geojit BNP Paribas Finance Services told NDTV Profit.  

Ridham Desai, managing director and head of India equity research at Morgan Stanley India told NDTV Profit there is a tail risk of 10-12 per cent on the Nifty index in case Eurozone falls apart.

4) Valuations: Stocks are cheap after the sharp selloff. For example, shares in Tata Motors have fallen over 20 per cent in the last month. Brokerage firms are coming out with buy calls, asking long term investors to invest in equities.

"Buy stocks with attractive valuations, reasonable growth prospects, and good management and watch your portfolio grow," Morgan Stanley said in a note.
 
5) Rupee has recovered: The rupee saw a sharp depreciation of over 23 per cent over the last 12 months and is the worst performing currency in Asia. But the currency has seen some recovery over the last week. Analysts expect the rupee to stablise at current levels.

Chetan Ahya, chief economist for Asia Pacific at Morgan Stanley, said the rupee will continue to trade around 56 to a dollar in the near-term and appreciate to Rs 52 by the year-end.

6) Hopes of stimulus in Europe: The acute financial problems in Spain and recent data confirming a widespread economic slowdown across Europe fuelled hopes that the region's central bank would respond with stimulus measures.
7) The European Central Bank is not expected to cut rates when it meets later today but it could indicate a readiness to take some action as early as next month, given the deteriorating economic outlook and Spain's banking troubles. The European Central Bank is due to announce the outcome of its latest policy meeting today, with the market consensus calling for it to keep interest rates unchanged at 1 per cent.

8) Positive news from Asia: Data showed the Australian economy grew a surprisingly strong 1.3 per cent in the first quarter and a report that bank lending in China was growing supported a move back into riskier assets.

9) Positive data from US: Service companies, which employ most of the American workforce, grew at a slightly faster pace in May. The result provided some relief for markets following a slew of dismal economic data, including a disappointing U.S. jobs report and a slowdown in Chinese manufacturing that intensified fears of a global economic recession. On Tuesday, the Institute for Supply Management said its index of non-manufacturing activity edged up to 53.7 last month from an April reading of 53.5. That is important because U.S. service companies employ roughly 90 percent of American workers — and it marked the 29th straight month of expansion for the sector.

10) Quantitative easing: Investors were hanging on to hopes for action by central banks and other authorities to stimulate growth, including a new round of "quantitative easing" by the U.S. Federal Reserve. That's when the Fed buys Treasury bonds to drive interest rates lower. The move might come June 17, when Greece holds elections that could determine whether the country will leave the euro currency union. A messy exit from the currency bloc by Greece would be sure to roil financial markets.

(With inputs from Reuters and AP)