The Indian stock markets staged a smart recovery and extended gains with both the domestic indices trading with 1% plus gains.
In the intraday trading session, the Sensex climbed nearly 900 points to touch an intraday high of 76,988. On the other hand, the Nifty crossed 23,850, gaining over 250 points. Both the indices are up 1% each. Small cap and midcap stocks led the charge, with gains of up to 2% during the session.
The benchmark indices are up for the third consecutive day.
What is striking is this came despite ongoing geopolitical tension, elevated oil prices, and a weak rupee. Therefore, what’s the big trigger now?
Let’s take a look at the key reasons behind the market rally-
Short covering fuels the rebound
One of the key factors behind the market’s recovery is short covering.
After the steep fall triggered by tension in the Middle East, many stocks became available at attractive valuations.
Crude oil stability eases fears
Although oil prices have been volatile recently, Brent crude eased to around $100 per barrel from last week’s highs near $119.
“Despite the uncertainty regarding the war, markets have staged a bounce back. One factor that enabled this is crude remaining around $102 and fears of spiking above $120 not materialising,” said Dr. V.K. Vijayakumar, Chief Investment Strategist at Geojit Investments.
Sectoral shifts support gains
Foreign institutional investors, while generally cautious, have selectively bought into certain sectors like telecom, which has supported the market’s resilience.
Dr. Vijayakumar also added, “Despite being sustained sellers in the market, FIIs have been selectively buying in some sectors like telecom. This partly explains the resilience in telecom stocks. Also, there is a portfolio churn happening away from IT and highly valued FMCG stocks towards telecom, pharmaceuticals, defence and select financials. Market leaders and fancied stocks in these segments will continue to be resilient even in a choppy market.”
IT stocks lead the charge
The IT sector stocks led the charge. The Nifty IT Index was up over 2% and Index heavyweights like Infosys, HCLTech and the like jumped 3% intra-day.
A recent report by CLSA, the international brokerage house, highlighted that “deal pipelines remain strong and valuations for India’s IT sector at its10-year average now look highly attractive.” They have a ‘High Conviction’ ‘Outperform’ rating on Persistent and Coforge and ‘Outperform’ rating on Infosys, Tech Mahindra, TCS and LTIMindtree. On HCLTech and Wipro they have a ‘hold’ rating
Broader markets outperform
The rally was not limited to the large-cap indices. The Nifty Midcap 100 and Nifty Smallcap 100 indices rose more than 1.5% each.
Sectoral indices also reported strong gains, with Nifty Auto up 2%, Information Technology up over 3.5%, Media and Realty up 3%, and Consumer Durables climbing 2%.
Global cues provide support
Markets abroad have also extended their rally. Japan’s Topix surged 2%, South Korea’s main indices rose nearly 5% to three-week highs, and Australia’s S&P/ASX 200 added 0.2%.