Banks and metal stocks rallied on Monday and lifted the Sensex by 470 points to 33,066 as analysts said the much talked about US-China tariff war may not be as damaging to the world economy as was perceived earlier. The surge helped the Sensex regain the 33k mark, while the Nifty closed above 10k again.
The day's session started with the Sensex opening in negative territory after a 400-point fall in the Dow Jones index on Friday night. But the BSE index gained through the session to close near the day's high of 33,115. Monday's gains were generated despite a Rs 741-crore net selling by foreign funds, while domestic funds recorded a net inflow of Rs 2,018 crore. The day's session added about Rs 1.5 lakh crore to investors' wealth with the BSE's market capitalisation now at nearly Rs 146 lakh crore. The surge in the Sensex came on the back of analysts' opinions that pointed towards only limited damage to the global economy due to US President Donald Trump's decision to impose $60 billion worth of tariffs on Chinese goods and a retaliatory $3 billion worth of tariffs imposed on US goods coming into China.
In a note titled ‘More Smoke, Less Fire', IIFL's Hitesh Jain noted, "The shock value of Trump's tactics notwithstanding, the actual blow to Chinese economy would be circumscribed in our reckoning, given that Chinese exports to US contribute only 3% to Chinese GDP. Select US tariffs on $60 billion of Chinese imports is a meagre 0.25% of China's GDP, comprising less than 0.5% of world trade."
"Likewise, US exports to China is less than 1% of America's GDP and only 8% of total exports. As US tariffs would cover select Chinese imports, the ensuing rise in US inflation would be minimal and transient in nature."
Analysts said fears of a full-blown trade war were mitigated after the US president diluted his initial stance to a large extent and excluded Canada and Mexico from the list of countries.
Although the day's gains were across the board, stocks of companies from banking & finance, consumer durables and metal sectors led the rally.