Benchmark stock market indices rebounded on Tuesday after falling sharply to 7-month lows in the previous session.
The S&P BSE Sensex was up over 400 points in early trade, while the NSE Niffty50 witnessed a similar rebound.
Despite today’s rally, the stock market remains under pressure due to several factors, especially the impact of Q3 earnings and sustained selling by foreign institutional investors.
While volatility has declined today, it also remains on the higher side, reflected by the wild swings that the broader market is encountering.
Here are three reasons you need to know about today’s stock market rally and whether it will last:
RETAIL INFLATION EASES TO 4-MONTH LOW
Retail inflation eased to a four-month low in December, which is among the factors contributing to today’s market rally. A fall in retail inflation is likely to provide a boost to most sectors, especially FMCG.
Though FMCG shares are down today due to the broader Q3 impact, the lower inflation is likely to provide a boost in the near-term.
HEAVYWEIGHT SECTORS GAIN
All Nifty sectoral indices rose except for IT, which fell nearly 2%. Heavyweight Nifty Bank and Nifty Financial Services indices also gained and added more steam to today’s recovery on Dalal Street.
Nifty Metal also gained sharply after falling in the previous session. The index was up 2.48%, with Adani Enterprises jumping over 5% and Hindustan Zinc gaining nearly 4%.
MAJOR STOCKS GAIN
Some major stocks such also gained in early trade due to high trade volume. They are Adani Enterprises, Bajaj Finance, SBI and HDFC Bank.
This also provided a boost to the stock market today, even as information technology stocks capped gains after a sharp fall in HCLTech’s share price following its Q3 results.
WILL STOCK MARKET RECOVER IN NEAR TERM?
Despite today’s recovery in the Sensex and Nifty, analysts expect the stock market to remain under pressure in the near term due to continued FII selling, a stronger US dollar, and diminished hopes of rate cuts.
So far, the Q3 earnings season has offered little cheer to the market, aside from a few bright spots like TCS, which posted stronger-than-expected results.
Prashanth Tapse, Senior VP (Research), Mehta Equities Ltd, said, “Investors are on edge ahead of the US inflation reports and the Federal Reserve meeting later this month. Persistent FII selling and rising crude oil prices continue to pressure the market.”
Dr. V K Vijayakumar, Chief Investment Strategist, Geojit Financial Services, offered a broader view on the ongoing correction in domestic stocks.
“The constant refrain from many saner voices that the broader market is overpriced and may correct sharply is now playing out. Reversion to mean valuations are happening in large caps, too,” he said,.
“Strengthening dollar, 10-year US bond yields rising to above 4.7%, uncertainty regarding Trump’s actions after January 20, slowdown in India’s economy and poor corporate earnings, sharp surge in crude – all have combined to cause this market correction,” he added.
However, Vijayakumar also noted that the market appears a “bit oversold” and added that this “favours a bounce back in the near term”.
“But that trend, if it plays out, is unlikely to sustain. There is more pain likely in mid and small caps. There is a message from the net institutional activity in the market yesterday. DII buying was Rs 3,174 crore higher than FII selling,” he explained.
“This means that smart money like HNIs are also selling in the market. The FII strategy of continuously adding to short positions this month has been successful. The sensible option for retail investors is to buy beaten down quality largecaps and wait patiently,” Vijayakumar said.
(Disclaimer: The views, opinions, recommendations, and suggestions expressed by experts/brokerages in this article are their own and do not reflect the views of the India Today Group. It is advisable to consult a qualified broker or financial advisor before making any actual investment or trading choices.)
