Bulls fight back as Sensex stages 700-point comeback. 4 factors driving the rally

Benchmark indices Sensex and Nifty rebounded sharply after briefly trading in the red, extending their gains for a second consecutive session on Friday. Continued strength in IT stocks, which rose for a fourth straight session, along with buying in auto, metal and PSU banking stocks, supported the rally.

At around 10:30 AM, the Sensex rose above 450 points to 74,751, while the Nifty gained over 100 points to trade near the 23,150 level. From the day's low, the Sensex had recovered more than 700 points to reach 74,775. The rebound follows a 1,500-point rally on Wednesday.

Among Sensex constituents, Tech Mahindra, Infosys, TCS, Bharti Airtel, Mahindra & Mahindra and HCL Technologies led the gains, rising as much as 7%. On the other hand, Reliance Industries, Hindustan Unilever, ITC, ICICI Bank and BEL declined around 1%.

Why is the stock market rallying today?

1) IT stocks extend gains for a fourth session

IT stocks, including TCS, Tech Mahindra, Infosys and HCL Technologies, rose as much as 8% on Friday, lifting the sectoral index by more than 3% and pushing its weekly gains into double digits. The rally follows stronger earnings and a selloff in AI-linked stocks.

VK Vijayakumar, chief investment strategist at Geojit Investments, said strong results from major IT companies and positive management commentary had triggered a sharp recovery in the IT index, helping the Nifty remain resilient. He added that the improvement could provide fundamental support to the broader market.

2) Cooling bond yields

Another positive development is the sharp decline in the US10-year bond yield to 5.07%. Falling US bond yields can support Indian equities by making emerging markets such as India more attractive to foreign investors. When yields on US Treasury bonds decline, the appeal of relatively riskier assets, including Indian stocks, can improve, potentially encouraging foreign portfolio investors (FPIs) to increase their exposure to Indian markets.

3) Oil prices ease

Despite simmering tensions and attacks on energy infrastructure, Brent crude prices dipped half a percent amid chances of US easing restrictions on the world's so-called shadow fleet of tankers to temper liquid gold prices.

The shadow fleet is a group of oil tankers used to transport oil from countries facing sanctions, particularly Russia, Iran and Venezuela, often outside the conventional Western shipping, insurance and regulatory system.

According to a Reuters report, the Trump administration is considering lifting sanctions on some so-called shadow fleet vessels that have transported oil and petroleum products from countries including Russia, Iran and Venezuela. The move is aimed at bringing down global freight rates, which have reached record highs.

Experts, however, say FII selling could likely persist as long as yields remain above 5% and oil above $100 per barrel.

4) Rupee gains for 5^th day

The rupee strengthened 0.2% to 94.83 against the US dollar, extending its winning streak to a fifth consecutive session, supported by position adjustments in the non-deliverable forwards (NDF) market.

Experts said that the rupee is strengthening, as offshore traders reduce bearish bets and the RBI continues to sell dollars, supported by curbs on hedging activity and the special dollar window for oil companies. “The near-term bias for USD/INR remains cautiously bearish, with a sustained move back above 94.90–95 needed to stabilise the pair. A decisive break below 94.40–94.50 could open the way toward 94.08,” Ponmudi R, CEO of Enrich Money, said.

Technical set up

Geojit Investments says “While we continue to maintain our 23,200-23,600 view, it is fair to expect mean reversion moves while below 23,070, given yesterday’s sharp rise. However, dips are expected to find buying interest as long as they don’t stretch beyond 22,780.”

Disclaimer: This article has been written by Veer Sharma, who is not a SEBI-registered Research Analyst or an Investment Adviser. Veer Sharma 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.