Indian equity indices continued their upward trajectory for a fourth consecutive session on Tuesday, with both the benchmark Sensex and Nifty 50 recording significant gains. The 30-share BSE Sensex surged 948.09 points, or 1.25 percent, to reach 76,640.87, while the NSE Nifty index advanced 251.85 points, or 1.07 percent, closing at 23,692.65.
Sectoral performance saw banks, financials, fast-moving consumer goods (FMCG), automobile, cement, and realty stocks leading the rally. Conversely, information technology (IT), metals, and pharmaceutical shares experienced declines. The broader market also participated in the positive sentiment, with midcap and smallcap indices rising by 0.66 percent and 0.42 percent, respectively.
Key Drivers Behind the Market Momentum
Several factors contributed to the sustained market rally, reflecting a positive sentiment among investors.
Robust Corporate Earnings
Strong corporate earnings have been a primary catalyst. According to a Nomura report, the Q2 FY27 earnings season commenced positively, building on a strong Q1 performance. Out of 134 companies in its BSE 200-plus universe that have reported results, normalized profit after tax (PAT) grew by an impressive 34 percent year-on-year, surpassing consensus estimates by 18 percent.
Improving Foreign Investor Sentiment
Nomura also anticipates an improvement in foreign investor sentiment towards Indian equities, which could boost portfolio flows in the near term. This outlook is attributed to relatively low starting expectations and valuations across most sectors remaining below their post-pandemic averages. The brokerage also noted that a correction in AI-related stocks globally has allowed Indian equities to outperform AI-heavy markets such as South Korea, Taiwan, and Nasdaq.
Additional Supportive Factors
- LTCG Tax Cut Hopes: Speculation surrounding a potential long-term capital gains (LTCG) tax cut for foreign institutional investors (FIIs) has buoyed investor confidence.
- Declining Global Bond Yields: A fall in global bond yields makes equity investments relatively more attractive.
- Rupee Stability: Expectations of continued support for the Indian rupee through Reserve Bank of India (RBI) intervention also contribute to market stability.
- Crude Oil Correction: Although elevated crude oil prices remain a concern, a recent correction from their peak levels has provided some relief to the market.
Analyst Insights and Future Outlook
VK Vijayakumar, Chief Investment Strategist at Geojit Investments, highlighted the favorable market conditions that support the continuation of the current rally. He pointed to the decline in Brent crude prices, further weakening of the AI trade, ongoing strong Q2 results, and FIIs turning buyers as potential accelerators for the market's upward trend.
However, Vijayakumar cautioned against interpreting the recent weakness in AI-related stocks as a broader collapse. He stated, “While the AI trade has slightly weakened, it is important to understand that this is only a correction, not yet a crash. Results of many AI companies continue to be good. So watch out for the trends in this segment.”
Markets are also closely monitoring the results of the upcoming US mid-term elections, due tomorrow, and their potential impact on geopolitical dynamics in the coming days.