Sensex Jumps 677 Points, Nifty Nears 25K; What Fuelled The Rally Despite Ongoing Israel-Iran Tensions?

Indian stock markets made a strong comeback on Monday after a slow start. The Sensex and Nifty 50 bounced back to close nearly 1% higher, helped by positive global cues, lower market uncertainty, and hope from international talks.

The Sensex jumped 677 points (0.84%) to close at 81,796, while the Nifty 50 gained 227.90 points (0.90%) to end at 24,946.50. Most sectoral indices also moved in line with the broader trend, with IT, realty, and metal emerging as the top gainers.

Broader markets also performed well, with the Nifty Midcap 100 and Nifty Smallcap 100 rising about 1% each. This broad-based rally helped the markets recover from a two-day losing streak.

Top Gainers & Losers:

Tech Mahindra and UltraTech Cement were among the day's top performers, rising 2% each. HDFC Bank rose nearly 1% after Jefferies flagged strong credit growth. Smallcaps and midcaps logged modest gains, while Tata Motors dragged, falling 3.6% on muted margin guidance for JLR.

The Nifty Midcap 100 Index rose by 0.93%, while the Nifty Smallcap 100 Index gained 0.95%.
Despite these sharp gains in the broader market segments, market breadth remained weak for the third consecutive day, with declining stocks marginally outpacing advancing ones, as indicated by a BSE advance-decline ratio of 0.94.

"From a technical perspective, by closing above 24,937, the Nifty has successfully retraced more than 61.8% of the entire 750-point fall observed from 25,222 to 24,473. Furthermore, the Nifty has filled the entire downward gap that was formed on Friday, on a closing basis.

This combination of surpassing the 61.8% retracement level and completely filling the gap decisively negates the immediate possibility of a sustained downtrend in the Nifty, suggesting a potential shift back towards bullish momentum. Support for the Nifty has now shifted up near 24700. On the upside swing high of 25222 could offer near-term resistance in Nifty," said Nandish Shah - Deputy Vice President, HDFC Securities.

What Fuelled the Market Rally?

Here are the top contributing factors that helped markets close on a higher note even after Israel- Here are the main reasons why the markets ended higher despite the Israel-Iran conflict, according to Vikram Kasat, Head of Advisory at PL Capital:

• Positive cues from Asian markets: Strong performance in Asian stock markets boosted investor confidence in India, contributing to the upward momentum.
• Dip in India VIX (Volatility Index): India VIX fell by 1.84%, indicating reduced market fear and uncertainty, which encouraged more buying.
• Renewed optimism over an India-US trade deal: Hopes of progress in trade talks between India and the U.S. lifted market sentiment, especially among exporters and multinational-linked stocks.
• Expectations of dovish signals from the US Federal Reserve: Investors are hopeful that the US Fed will maintain a cautious and supportive stance on interest rates, which could benefit global liquidity and emerging markets like India.
• Status quo expected from the Bank of Japan: Stable policy from the Bank of Japan added to global market stability, which positively influenced Indian markets.
• Strong domestic institutional investor (DII) inflows: DIIs have pumped in nearly ₹89,000 crore over the last 19 trading sessions, showing strong domestic support for the markets.

Supporting the above pointers, Vinod Nair, Head of Research, Geojit Investments, said, "Despite ongoing geopolitical tensions between Israel and Iran, the market moved higher, supported by gains in large-cap stocks, as investors maintained their focus on long-term fundamentals in the time of volatile situations. Geopolitical developments in the Middle East are likely to influence near-term market sentiment, with any signs of de-escalation being closely monitored.

Small-cap stocks are expected to underperform in the short term, given their elevated valuations and absence of short-term triggers. Among sectors, oil and gas recorded strong gains, while the IT sector outperformed in anticipation of the upcoming US Fed policy meeting, which is expected to provide further clarity on the interest rate outlook."

Impact on Rupee VS Dollar:

The Indian rupee recovered its early losses and ended slightly stronger by 0.02 paise against the US dollar, closing at 86.06 on Monday.

"The Indian rupee clawed back most of its early losses to close with a minor appreciation versus US dollar. This resilience was fueled by a prevailing risk-on sentiment, consistent dollar inflows into the market, and a string of positive economic data domestically. The rupee's stability were backed by a lower wholesale inflation rate and a decline in trade deficit reading," said Mr. Dilip Parmar, Research Analyst, HDFC Securities

"Looking ahead, the spot USD/INR is expected to find support at 85.85 and encounter resistance at 86.45," added Dilip Parmar of HDFC Securities.