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NEW DELHI: While a recovery in US index futures was cited as the key reason behind the resounding rebound in the domestic market on Friday, there was also a buzz on Dalal Street which suggested that the recovery in US futures was driven by a set of algos.
“Algo funds have been at work in the big selloff seen in the US index in recent days.
As index target levels were getting breached in quick succession, algos used by some of the funds got triggered, leading to the phase-wise selloff,” says Sameer Kalra, Founder of Target Investing, a Mumbai-based brokerage firm.
Algo, or algorithmic trading, is a method of executing orders using automated pre-programmed trading instructions that use different variables such as time, price and volume.
Kalra said the selloff was supposed to end around 2,450 on S-P500.
On Thursday, the index shut shop at 2,480, which triggered a trend reversal and kicked in algo-based buying from this morning.
Kalra said the US Fed’s announcement of trillions of dollars of repo auctions would pump in a lot of and ease the liquidity pressure on US banks.
Most Asian markets recouped losses on Friday after falling up to 10 per cent in early trade.
Across Asia, Shanghai ended the day down 1.23 per cent, Hong Kong 1.14 per cent, Kospi 3.43 per cent and Nikkie 6.08 per cent.
Indian stocks stages its biggest-ever rebound, with the Sensex rallying some 4,700 points from the day’s low point to close at 34,103, up 1,325 points.
Nifty ended 433 points higher at 10,023.
Earlier in the day, Sensex had fallen as much as 10.34 per cent, or 3,389 points, to 29,388, while Nifty had declined as much as 10.79 per cent or 1,035 points to 8,555, to hit the lower circuit limit, triggering a 45-minute trading halt.
Markets in Europe opened up to 4 per cent higher.
At the time, the domestic market closed, US e-mini S-P 500 futures were trading 92.50 points higher at 2,561, signalling some bounce in US stocks later in the day.
These futures had traded deep in the red in the morning.
“Short-covering, particularly in Nifty Bank, partly helped boost sentiment in Friday’s market recovery,” said Chandan Taparia of Motilal Oswal Securities.
“After the initial panic in the market, build-up of long positions were seen in Nifty.
What lifted the index sharply, however, was short covering in Nifty Bank,” he said.
During the day, Sebi assured investors that stock exchanges have a robust risk management framework in place.
Investors also took comfort in the fact that oil prices headed for the biggest weekly loss since 1991 and US crude headed for its worst week since 2008.
“The Fed-driven liquidity will flood equity and debt markets soon.
Also, in the evening today, the US Congress will reveal details of the coronavirus aid package.
Nifty may hit 11,000 very quickly,” Kalra said.
