4 Factors That May Have Helped Indian Markets Recover After Dramatic Fall

Indian benchmark indices made their biggest ever intraday recovery ever in Friday's session. Sensex jumped over 5,000 points and Nifty rose by 2,500 from their respective day's lows.

After the 45-minute trading halt on Friday morning, there was a sudden change in sentiment among investors.

The possible reasons for the change in sentiment could be:

1. Recovery in global markets

In Australia, the S&P/ASX 200 closed 4.42 percent higher at 5,539.30, a dramatic recovery from its more than 8 percent fall seen during the session. The pan-European index Stoxx 600 climbed 2.1 percent after logging its biggest-ever one-day loss of 11 percent.

Further, as of 3:19 am (Eastern Time) on Friday, futures on the Dow Jones Industrial Average were up 580 points, implying that it will open with gains of 467.38 points, according to a CNBC report. S&P 500 futures and Nasdaq-100 futures also turned positive.

While coronavirus panic remains, especially in Europe, the US Federal Reserve on Thursday announced that will step up its purchase of Treasuries to maintain liquidity and ease the jitters in financial markets.

On the other hand, most Asian stock markets were trading lower with Japan's Nikkei 225 being the biggest loser to close 6.08 percent lower at 17,431.05 after plunging 10 percent during the day.

2. SEBI's statement

Following the dramatic fall in stock prices in opening trade, the market regulator issued a statement explaining that the "SEBI and Stock Exchanges have a robust risk management framework in place which automatically gets triggered in response to movements in the indices (BSE Sensex and NSE Nifty) as well as individual stocks both in cash and derivatives market."

These measures include Value at Risk (VaR) Margin with initial margin to cover 99 percent risk of a transaction.

"The positions of margin payments, margin utilization, adequacy of collaterals (securities deposited by the brokers with the clearing corporations) and the pay-in's obligations being met by the clearing members (brokers) are being continuously monitored. Similarly, the settlement and clearance of trades are also being constantly monitored," it said.

"SEBI and Stock Exchanges are prepared to take suitable actions as may be required," it added.

3. Extension of decline in oil prices

Crude oil prices fell for the third consecutive day on Friday with Brent crude falling 2 percent to $32.55 a barrel. Cheap oil is good news for India and the rupee, as it helps ease the country's CAD with a smaller import bill.

On Thursday, RBI said that India' s current account deficit (CAD) narrowed further by 0.2 percent of GDP in the October-December quarter on the back of a contraction in the trade deficit and rise in net services receipts.

4. Rupee's staged recovery

The Reserve Bank of India (RBI) announced liquidity measures such as buy-sell swap of $2 billion to increase dollar availability with banks and ease pressure on the rupee after a heavy demand seen for the US dollar.

The domestic currency opened at 74.39 and then tumbled to hit an all-time low of 74.50 against the US dollar as investors panicked weighing turmoil in financial markets globally due to coronavirus pandemic.

However, it made a sharp recovery to trade at 73.92, up 36 paise against the US dollar, buoyed by measures by the central bank to arrest the rupee free-fall.