After nearly three weeks of sluggish performance, the Indian stock market staged a recovery on Wednesday. The Nifty 50 index, which opened slightly lower at 22,073, quickly gained momentum and ended the session at 22,347, clocking an intraday gain of over 250 points. Similarly, the BSE Sensex opened higher at 73,005 and closed at 73,730, registering a sharp 740-point rise. Meanwhile, the Bank Nifty index started flat at 48,241 but managed to inch up to 48,487 by the end of the trading day.
It wasn’t just the frontline indices that saw buying interest. The broader market also witnessed a surge, with the BSE Small-cap index closing 2.80% higher and the Mid-cap index ending 2.66% up. By the end of the day, 190 BSE-listed stocks hit the upper circuit, while 193 stocks were locked in the lower circuit. Additionally, 50 stocks reached their 52-week highs, whereas 195 touched their 52-week lows.
Stock market experts believe this sudden rally could be linked to short covering, particularly by foreign institutional investors (FIIs). The dip in the US dollar and US treasury yields may have prompted FIIs to unwind their short positions, leading to a relief rally on Dalal Street. Additionally, concerns over Donald Trump’s recent tariff-related comments appear to have faded, with investors now focusing more on US inflation risks.
Short covering: Market analysts suggest that after 19 consecutive sessions of losses, a large number of short positions had accumulated. FIIs, who were among the biggest short sellers, may have begun covering some of their positions, triggering a sharp rebound.
US dollar weakness: The US dollar index has slipped to its lowest level since December 2024, trading near 105.50. A weaker dollar often leads to higher liquidity in emerging markets like India, as FIIs shift funds away from the US currency.
Declining US bond yields: Despite a slight uptick in US treasury yields on Wednesday, bond yields have generally softened in recent sessions. Lower bond yields tend to reduce the attractiveness of US assets, pushing investors to look elsewhere, including Indian equities.
Inflation concerns in the US: Some analysts believe that inflationary pressures in the US could force the Federal Reserve to maintain a cautious stance. Any hints of tightening monetary policy by the Fed can have a ripple effect across global markets, influencing investor sentiment in India.
Fading fear of Trump’s tariffs: While Trump’s comments on trade tariffs initially unsettled the markets, experts suggest that investors are now more concerned about economic fundamentals. The possibility of tariffs causing inflation in the US and impacting consumer spending might even limit Trump’s ability to follow through with aggressive trade measures.
Market observers believe that Nifty 50 needs to break decisively above the 22,500 mark to build confidence in a sustained uptrend. Similarly, Bank Nifty would need to cross 49,200 for further bullish momentum. Until then, traders should remain cautious as volatility is expected to continue.
While today’s rally provides some relief, it remains to be seen whether this is the beginning of a sustained recovery or just a temporary bounce. With global economic uncertainties still in play, investors should stay alert and watch key levels closely in the coming days.
(By arrangement with livemint.com)
