Sensex rises over 400 points, Nifty above 22,650 as market extends gains. Why caution is warranted

The Indian stock market extended its recovery for the second consecutive session on Tuesday, with Sensex and Nifty recording slight gains as investors found some relief after the incessant selloff seen earlier, although multiple headwinds warrant caution.

At 9.20 AM, Sensex gained over 100 points to open at 72,508, while Nifty 50 rose nearly 48 points to trade above the 22,600 level on Tuesday. Broader markets also extended gains, with Nifty Midcap 100 and Nifty Smallcap 100 indices rising up to 0.5%.

Trent shares rallied nearly 9% after a strong Q2 business update, while Kotak Mahindra Bank, Axis Bank and NTPC shares rose around 1% each. Bucking the trend, Titan and M&M shares fell around 1% each.


Nearly all sectoral indices opened in the green with marginal gains, except a few like Nifty IT and Nifty Auto which slipped into the red with marginal losses. The overall market breadth turned positive, with NSE seeing 1,494 advances against 1,249 declines, while 100 stocks remained unchanged.

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What lies ahead for Dalal Street?

It would be challenging for the bulls to sustain the rally beyond a point, warned VK Vijayakumar, Chief Investment Strategist at Geojit Investments. Since the US 10-year bond yield hovers around 5.3%, FIIs will continue selling, pushing the market construct into a ‘sell on rally’’ mode, he said.

This means FIIs will continue to sell large-caps despite their attractive valuations and DIIs will continue to buy these stocks since the fund inflows continue unabated. A sustained rally in the market will require a sharp dip in crude prices, according to the analyst. But there is no clarity on this front.

“This uncertainty will weigh on the central bank when the RBI Governor announces the MPC policy decision tomorrow. A 25 bps rate hike appears inevitable in the context of rising inflationary expectations and the rising bond yields in most of the developed world. A rate hike is already discounted by the market and, therefore, the focus of the market participants would be on the policy stance and the RBI’s estimates on growth and inflation,” he said.

From the investors’ perspective it is important to understand that a rate hike would be beneficial for the banks whose margins will improve from rising floating rates, Vijayakumar said, adding that the strong deposit and credit growth in the economy indicate good prospects for the financial sector.

Technical view on Nifty

Anand James, Chief Market Strategist at Geojit Investments has pencilled in 23,100-23,220 as the near-term objectives to aim for Nifty 50, with 22,800 expected to pose an intermediate challenge.

Meanwhile, the benchmark index’s inability to push above the 22,555-22,615 band today will signal the need for some more consolidation, but favoured view does not see a stretch beyond 22,050 for now, the analyst said.

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Disclaimer: This article has been written by Debaroti Adhikary, who is not a SEBI-registered Research Analyst or an Investment Adviser. Debaroti Adhikary and his/her ‘relative(s)’ (as defined under Section 2(77) of the Companies Act, 2013) do not hold any financial interest in the companies mentioned in this article as of the date of publication. The views/recommendations mentioned in this article, wherever applicable, are those of the respective SEBI-registered Research Analyst/brokerage and have been reproduced/reported with due attribution. They should not be construed as the views or recommendations of The Economic Times Digital or the journalist. Readers are advised to consider the original research report and make their investment decisions based on their own assessment. Brokerage disclaimers here.