Indian equity indices staged a smart rally on Thursday, after remaining shut for a two-day break. The rally was backed by fresh buying by domestic institutional investors in index heavy weights and short covering in the derivative segments.

Inflation numbers for the week, which were at a six-year low, further improved sentiments on the bourses, helping the two key equity indices shrug off negative January IIP figures. The bourses ended the day?s trading session on a high note.

The 30-share Sensex of the Bombay Stock Exchange (BSE) added 183.35 points, or 2.25%, to close at 8,343.75 points. The broader S&P CNX Nifty of the National Stock Exchange (NSE) gained 44.30 points, or 1.72%, to end the day at 2,617.45 points.

Since the Indian market was closed for the last two days, traders and market participants said Thursday?s rally in the equity market was a reflection of the strong rally registered by the US and Asian markets on Tuesday and Wednesday.

The domestic market, which was in an over-sold position on Monday, witnessed some short covering and fresh buying from institutional investors during the day.

Following the short covering in the derivative segment, the discount in Nifty March futures narrowed down to 16.75 points on Thursday, compared to a discount of 25 points on Monday. Nifty March futures ended the day at 2,600.70 points.

Alex Mathew, head of research at Geojit Financial Services Ltd, said, ?Indian markets tried to catch up with the strong rally in global markets witnessed during the last two days. Many of the banking sector stocks, which were trading at their 52-week low, saw fresh buying from institutional investors. This pulled the index up.?

Though Indian bourses managed to buck weak Asian sentiments, analysts and traders feel that the market will not be able to sustain the momentum. This could be vindicated by the fact that the market breadth remained negative on the BSE; while 1,162 stocks ended the day on a positive note, 1,262 stocks closed in the red.

Moreover, foreign institutional investors continued to be net sellers on Thursday, to the tune of Rs 186.86 crore, according to provisional figures released by the BSE.

Unsustainable momentum?

• The 30-share Sensex of the BSE added 183.35 points, or 2.25%, to close at 8,343.75

• The S&P CNX Nifty of the NSE, gained 44.30 points, or 1.72%, to end the day at 2,617.45

• Thursday?s rally was a reflection of the strong rally registered by the US and Asian markets on Tuesday and Wednesday

• Analysts and traders feel that the market will not be able to sustain the momentum

• This could be vindicated by the fact that the market breadth remained negative on the BSE