On Monday, December 23, the Indian stock market benchmarks, the Sensex and Nifty 50, rebounded sharply, breaking a five-day losing streak.
After experiencing a sharp decline of around 5% over the past five consecutive sessions, the indices witnessed a relief rally, gaining over 1% during intraday trading.
The Sensex opened at 78,488.64, up from its previous close of 78,041.59, and surged by as much as 877 points, or more than 1%, reaching 78,918.12.
The Nifty 50 followed suit, opening at 23,738.20, up from 23,587.50, and climbing nearly 300 points, or over 1%, to an intraday high of 23,869.55. Despite a slight pullback in the later stages, both indices closed higher.
The Sensex ended the day up by 499 points, or 0.64%, at 78,540.17, while the Nifty 50 finished 166 points, or 0.70%, higher at 23,753.45.
Despite this positive movement, mid and small-cap stocks did not perform as strongly. The BSE Midcap index rose by a modest 0.10%, while the Smallcap index fell by 0.60%.
However, the market capitalisation of BSE-listed companies increased by ₹1 lakh crore in a single session, reaching ₹442 lakh crore, boosting investor wealth.
Several sectoral indices showed significant gains. The Nifty Bank, PSU Bank, and Realty indices all rose by over 1%.
Other indices such as Nifty Private Bank, Financial Services, FMCG, Consumer Durables, Metal, and Oil & Gas also saw gains of nearly 1% each. These gains were driven by a variety of factors that contributed to the market's overall positive performance.
Key Factors Driving the Stock Market Rally
Value Buying
One of the primary factors driving the market's rally was value buying. After a correction in stock prices, investors started looking for undervalued stocks, particularly large-cap stocks with strong fundamentals.
These stocks, which had solid growth prospects, robust earnings, low debt, and consistent cash flow, were seen as attractive investments at lower price points. Investors were positive about the Indian market's medium to long-term prospects, and this optimism led to a surge in buying activity.
Positive Global Cues
The Indian stock market also benefited from positive global cues, particularly from Wall Street and other major Asian markets. A rally in the US and Asian markets, largely driven by softer inflation data, had a positive impact on investor sentiment.
The US Commerce Department's report on Friday showed that inflation had moderated, with the underlying inflation index recording its smallest increase in six months.
Additionally, investors felt relieved after the US government averted a shutdown by passing spending legislation, further boosting market confidence.
Smart Gains in Heavyweight Stocks
Gains in select heavyweight stocks played a crucial role in lifting the Indian stock market. Stocks like ITC, HDFC Bank, and Reliance Industries saw rises of 1-2%, contributing significantly to the day's overall gains.
The Nifty Bank index, which includes some of the most important banking stocks, rose by over 1%, with 11 of its 12 constituent stocks ending higher. Banking stocks carry substantial weight in both the Sensex and the Nifty 50, so their strong performance had a significant impact on the broader market.
Hopes of Policy Support
Market experts were also optimistic about potential policy support, which helped drive the rally. The market had already priced in the revised interest rate outlook from the US Federal Reserve.
Investors were now focusing on the Reserve Bank of India’s upcoming monetary policy and the Union Budget 2025 for further policy guidance. Expectations of increased capital expenditure by the government and potential fiscal measures in the Budget boosted market sentiment.
There was also hope for a 25 basis point rate cut by the RBI, which would further support economic growth.
Technical Factors
Finally, technical factors also played a role in the market's recovery. According to Anand James, Chief Market Strategist at Geojit Financial Services, the Nifty was expected to attempt a pullback above its 200-day simple moving average (SMA) at 23,837.
Shrikant Chouhan, Head of Equity Research at Kotak Securities, noted that the Nifty 50 had formed an "inside body candle" on its daily charts, indicating indecisiveness between buyers and sellers.
Chouhan suggested that level-based trading would be the ideal strategy for traders, with support levels at 23,650 and 23,550, and resistance levels at 23,850 and 24,000.
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