Sensex gains 560 points, Nifty above 23,800. 5 Key factors behind today's Dalal Street rally

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After opening, Sensex gained over 560 points to 75,880, while Nifty 50 gained over 173 points, or 0.73%, to 23,832. This came as India VIX, which measures market volatility, sharply declined by more than 4% to 17.63 in the morning trading hours.

IndiGo, Bharat Electronics (BEL), Zomato-parent Eternal, Power Grid, Asian Paints, L&T, and Tata Steel shares were the top gainers on Sensex, rising up to 3%. IT heavyweights Infosys and TCS meanwhile, bucked the trend to trade in the red, snapping a multi-session gaining streak.

The broader markets outperformed benchmarks, with Nifty Smallcap 100 and Nifty Midcap 100 indices gaining up to 0.8% in the morning. All sectoral indices on NSE were trading in the green, with Nifty Realty rising more than 1% to lead gains. Around 2,063 stocks advanced on the exchange, while 414 declined and 77 remained unchanged.

“The recent market movements indicate a buy on dips market construct. Buy on dips strategy has been working well. It appears that the sustained selling by FPIs has also stopped since they were buyers for a couple of days recently,” said VK Vijayakumar, Chief Investment Strategist at Geojit Investments.
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Here are the key factors leading to the market uptrend today:

1) Bond yields cool down from record highs

Bond yields sharply cooled down overnight, falling significantly below the multi-year highs that they hit earlier this week. The benchmark 10-year US Treasury yield had hit a 16-month high of 4.687% on Tuesday, while the 30-year yield climbed to 5.198%, levels last seen in 2007. High bond yields typically make bonds attractive to investors, which in turn can lead to some downturn in equity markets.

As the US dollar declined from a six-week high and oil prices dropped around 6%, the yield on benchmark US 10-year notes fell 9.4 basis points to 4.576% on Wednesday. However, oil prices and bond yields inched slightly higher on Thursday morning. The yield on benchmark US 10-year notes rose to 4.584% while Brent crude futures gained over 0.8% to $106 per barrel.

2) Oil prices below $110/barrel

Oil prices also cooled down sharply overnight, before inching up slightly in the morning. Brent crude futures and WTI futures dropped nearly 6% late on Wednesday after Trump said negotiations with Iran were in the final stages, but he also threatened further attacks if Iran did not agree to a peace deal. Brent crude futures were hovering at nearly $106 per barrel on Thursday morning.

“The sharp drop in oil prices appears to be pricing in the possibility of a breakthrough in the ⁠talks,” said ‌Reuters quoted Yang An, analyst at Haitong Futures, as saying. “However, if Trump insists on making no concessions to Iran, an agreement seems unlikely, and the outcome of the negotiations could reverse sharply,” ⁠he added.

3) Rupee jumps sharply

Rupee recovered 61 paise from its all-time closing low to trade at around 96.25 against the US dollar in early trade. The Indian currency had soared close to $100 per dollar mark in the previous session.

The sudden strength in rupee may have been driven by reported dollar-selling intervention by the Reserve Bank of India. The Reserve Bank of India said on Wednesday it will conduct a dollar/rupee buy/sell swap auction of $5 billion for a tenor of three years on May ‌26. The swap followed a review of current and evolving liquidity conditions, the central bank said, and comes as it continues to defend a rapidly weakening rupee by selling dollars from forex reserves.

“The broader trend remains negative as long as the rupee trades below the 96.00 mark, with sentiment still dominated by crude movement and external sector concerns. A meaningful reversal in the rupee trend would largely depend on the return of sustained FII inflows, which could help stabilize sentiment and improve dollar liquidity in domestic markets,” said Jateen Trivedi, VP Research Analyst of Commodity and Currency at LKP Securities.

4) Iran-US peace deal hopes rise

Iran on Wednesday said that it was examining a new proposal by the US to end the raging war in the Middle East, while US President Donald Trump described the talks as being on the “borderline” between a deal and renewed strikes. Esmaeil Baqaei, Iranian foreign ministry spokesman, said that Tehran had “received the points of view of the American side” and was going through them. He reiterated Iran’s demands for the release of frozen assets and an end to the US blockade of Iranian ports. This may have spurred fresh hopes for a sooner conclusion of the much-awaited peace deal.

Trump, meanwhile, reiterated his threats. “It’s right on the borderline, believe me…If we don’t get the right answers, it goes very quickly. We’re all ready to go,” Trump told reporters, explaining that the window for diplomacy can close soon.

Iran’s chief negotiator, Mohammad Bagher Ghalibaf, earlier accused the US of trying to resume the war following Trump’s fresh threats. He warned of a “forceful response”, while Iran’s Revolutionary Guards said any renewed conflict would spread far beyond the Middle East.

“The enemy’s movements, both overt and clandestine, show that despite economic and political pressure, it has not abandoned its military objectives and is seeking to start a new war,” Ghalibaf said.

5) Global markets rally

Global markets soared as some vessels resumed passage through the Strait of Hormuz, as per Reuters. The suspended workers’ strike at Samsung Electronics, meanwhile, lifted shares of chipmakers. South Korea’s Kospi skyrocketed 8% while Taiwan Weighted and Japan’s Nikkei rallied 4% each.

On Wall Street, the S&P 500 rose 1.1%, while the Nasdaq Composite rallied 1.5% after three days of declines on Wednesday. European markets also closed in the deep green yesterday.

Why is some caution warranted?

Foreign investors remained net sellers of Indian equities for the second consecutive session on Wednesday, selling shares worth Rs 1,597 crore on Dalal Street. This comes after a three-session buying streak during which FII bought Indian shares worth Rs 5,240 crore. Foreign investors have mostly remained bearish on Indian markets this month so far, remaining net sellers of Indian equities in nine out of 13 sessions so far in May.

Nifty needs to start forming higher high and higher low on a sustained basis in the daily chart and a move above the breakdown area of 23,800 – 23,900 to signal strength, said Bajaj Broking. “Nifty has key support at 23,200 – 23,000 levels being the confluence of the lower band of the 8th April bullish gap area and the 61.8% retracement of the previous pullback (22,182- 24,601),” it added.

A lot will depend on the crude price and stability in the rupee, said VK Vijayakumar, Chief Investment Strategist, Geojit Investments. “Brent crude declining to $106 this morning is a positive signal. Perhaps the market is taking cues from President Trump’s remark that “ the conflict will end soon and oil prices would plummet.” But going by past experience, President Trump’s words cannot be trusted and, therefore, we will have to see more tangible results,” he added.

“Q4 results have been, so far, good. The negative impact of the energy crisis will be felt in Q1 FY27. But if crude price continues to decline, the remaining quarters will be reasonably good,” the analyst further said.

(With inputs from agencies)

(Disclaimer: Recommendations, suggestions, views and opinions given by experts are their own. These do not represent the views of The Economic Times)

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