Why did market rally today? Sensex surges 1,100 points, Nifty closes above 22,700. 5 key factors behind D-Street rebound

Indian equity benchmarks Sensex and Nifty staged a sharp rebound on Tuesday, jumping more than 1.5% each after Finance Minister Nirmala Sitharaman’s comments around LTCG tax and securities transaction tax, along with IT rally and other factors boosted investor sentiment.

Sensex jumped 1,100 points to close at 73,034, while the Nifty climbed over 350 points to end the session above the 22,700 level. The sharp gains added around Rs 5 lakh crore to the total market capitalisation of all companies, pushing it up to Rs 470 lakh crore.

Broader markets also erased all early losses and swung into the green, with the Nifty Midcap 100 jumping more than 1% while the Nifty Smallcap 100 closed with marginal gains.


Read More: Sensex Nifty Live Updates

IT stocks were the top gainers on the Sensex. HCL Tech shares rallied more than 8% after its Q2 results, while heavyweight peer TCS jumped around 7%. Shares of Tech Mahindra and Infosys rose up to 5%.

Shares of Hindustan Unilever, Trent, Bajaj Finserv, Bajaj Finance, Titan, M&M, BEL, Bharti Airtel, SBI, UltraTech Cement, HDFC Bank, Tata Steel, ITC, L&T, ICICI Bank, Asian Paints and Axis Bank shares gained up to 3%. Bucking the trend, Kotak Mahindra Bank, Eternal and Maruti Suzuki shares fell nearly 1% each to close as the only losers on Sensex.

Among the sectors, Nifty IT rallied more than 5% to lead gains, while Nifty Realty jumped more than 1%. Nifty FMCG, Nifty Auto, Nifty Financial Services, Nifty Metal, Nifty PSU Bank and few other sectoral indices gained more than 1% each. Nifty Pharma however slipped into the red. The market breadth remained positive, with NSE seeing 2,128 advances against 1,418 declines while 98 stocks remained unchanged.

Here are the key factors pushing the market up today:

1) LTCG, STT tax rejig ahead?

Finance Minister Nirmala Sitharaman on Tuesday said discussions around long-term capital gains tax and securities transaction tax were being held. Speaking at the Bloomberg New Economy Forum, she said Indian and global investors have been commenting on long-term capital gains tax and the debate on transaction tax and whether different asset classes should be treated similarly has been well discussed.

Her comments comes after India continues to see sharp outflows from its equity stock market amid multiple headwinds. SBI Research said in its Ecowrap report on Monday said the government should look into abolishing the long-term capital gains (LTCG) tax on equities which can help ensure such investors stay invested longer.

Also Read | Rupee volatility in focus as Sitharaman signals more RBI action, weighs LTCG tax debate

2) IT stocks rally

The sharp rally in heavyweight IT stocks is pushing the markets higher up today, despite existing headwinds. This comes as the overall downtrend in global AI stocks uplifted sentiment for India’s much-touted tech giants, which have been seen as the so-called ‘anti-AI’ trade.

South Korea’s Kospi, seen as the face of the frenzy around artificial intelligence, crashed more than 6%, while Japan’s Nikkei was down more than 2%. This came while heavyweight tech stocks like Samsung and others crashed amid rising worries around the excessive optimism around the nascent technology, with analysts warning of a bubble.

3) Rupee strengthens sharply

Rupee jumped 82 paise to 94.96 against US dollar in early trade on Tuesday, extending sharp gains after RBI’s moves to protect the falling currency against the American greenback. RBI on Monday tightened rules on rupee non-deliverable derivative contracts, limiting overseas clients to using them only for hedging, and widened a 20% cash reserve requirement to banks' own rupee currency hedges.

This comes after the Indian central bank on Saturday announced four measures including dedicated dollar supply window for three state-run oil companies, tighter restrictions on foreign exchange derivatives, a 20% cash reserve requirement for certain currency contracts and stricter daily cash reserve requirements for banks. “These steps are expected to reduce pressure on the spot market and curb speculative dollar buying, supporting the currency in the near term. However, sustained recovery will depend on FII flows, crude oil prices and broader dollar movement,” said Jateen Trivedi, VP Research Analyst of Commodity and Currency at LKP Securities.

4) Bond yields cool down

After skyrocketing to multi-year highs, bond yields cooled down slightly, easing pressure on the equity stock markets. The US 10-year bond yields fell below 5.2%, while that on the 30 year Treasury notes dropped to 5.56%.

The two-year US bond yields, which moves in tandem with Fed rate decisions, eased below 4.8%. The market has been recently seeing pressure from soaring bond yields which typically makes debt markets more attractive to investors, which in turn puts pressure on the emerging equity markets. Bond yields move inversely to bond prices, so soaring yields reflect a sharp selloff in bonds.

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5) Oil prices fall

Oil prices slipped on Tuesday as investors assessed the possibility of more Russian oil entering global markets. US President Donald Trump defended his government’s decision to briefly ease restrictions on Russian diesel supplies.

Brent crude futures dropped more than 1% to trade near $105 per barrel, while WTI Crude futures also fell more than 1% to trade below $93 per barrel. Goldman Sachs however said additional Russian diesel supplies were unlikely to significantly ease pressure on global fuel prices, CNBC reported.

What lies ahead for Dalal Street?

While investors are optimistic, caution is warranted. VK Vijayakumar, Chief Investment Strategist at Geojit Investments, highlighted that there are no triggers to change the ongoing trend of sustained FII selling and DII buying in the cash market. The restrictions imposed by the RBI by limiting trading in forex derivatives and raising the cost of trading have brought some relief to the rupee, and this has helped to reduce FII selling to Rs 1,708 crore yesterday, he noted. But with the US 10-year bond yield hovering above 5.2%, chances are that FIIs will continue to sell in the cash market, he added.

“The patient long-term domestic investors will certainly stand to gain from the systematic investments they are making now,” Vijayakumar said, adding that with rising food inflation (7.74%) and Brent crude trading consistently above $100, a rate hike by the RBI in December is a foregone conclusion now. “This will be margin accretive for banks."

Technical view on Nifty

Market sentiment will remain cautious amid technical weakness, according to Hemang Gor, Senior Research Analyst of Derivatives and Technical Research at Axis Direct. He noted that Nifty’s RSI at 34 is nearing oversold territory, indicating fading selling pressure but no decisive reversal as long as it stays below 22,500–22,600.

The technical analyst expects the benchmark index to find immediate support at 22,300 on the downside, and a breach below this level on its expiry-day could expose the 52-week low near 22,180.

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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.