Dalal Street received a strong boost on Thursday as a sharp decline in crude oil prices, renewed foreign investor buying and hopes of easing global tensions lifted market sentiment. The Sensex surged nearly 1,400 points in early trading, while the Nifty moved towards 24,350, extending gains recorded in the previous session.
The rally came as some of the major concerns affecting Indian markets showed signs of easing.
Crude oil prices have fallen from levels above $100 per barrel, foreign institutional investors (FIIs) have resumed buying after an extended period of selling, and the US midterm election results have raised expectations of a possible shift in Washington's approach towards trade policies and the Iran conflict.
At 9:24 am, the BSE Sensex was trading at 78,651.14, up 1,349.74 points or 1.75%. Meanwhile, the NSE Nifty 50 gained 375.70 points or 1.57% to reach 24,336.30 at 9:25 am.
The gains were widespread, with buying interest across most sectors and heavyweight stocks. Among Sensex constituents, IndiGo topped the gainers with a rise of 5.07%. Bajaj Finance advanced 4.63%, Asian Paints climbed 4.18%, Mahindra & Mahindra gained 3.84%, and Maruti Suzuki rose 3.71%.
None of the 30 Sensex stocks were trading in negative territory in the 9:24 am market snapshot.
Among sectoral indices, Nifty Financial Services ex-Bank led the rally with a 2.72% gain, followed by Nifty Financial Services 25/50 at 2.41%, Nifty Auto at 2.04% and Nifty Realty at 1.94%. Nifty Private Bank advanced 1.57%, Nifty PSU Bank gained 1.55%, and Nifty IT rose 1.60%. Nifty FMCG and Nifty Metal both climbed 0.84%.
Broader market indices also recorded gains, with Nifty 100 rising 1.47%, Nifty 200 advancing 1.37% and Nifty 500 gaining 1.32%.
Here are three key factors driving the market rally.
FALLING CRUDE OIL PRICES PROVIDE RELIEF
The biggest positive for Indian equities has been the steep correction in international crude oil prices.
Brent crude was trading at $93.59 per barrel, down 1.09%, while US West Texas Intermediate (WTI) crude declined 1.53% to $86.77, according to the latest market snapshot.
The decline follows growing expectations that the conflict between the US and Iran could move towards a resolution after the US midterm election results. Earlier concerns about the conflict had pushed oil prices higher amid fears of supply disruptions, creating additional pressure on countries such as India that depend heavily on imported crude.
Lower oil prices can significantly benefit the Indian economy. Since the country imports a large proportion of its crude requirements, a sustained decline in global prices could reduce its import expenditure, ease pressure on the current account deficit and help control inflation.
Cheaper crude could also provide relief to companies dealing with high fuel and raw material expenses.
Dr V K Vijayakumar, Chief Investment Strategist at Geojit Investments Limited, described the decline in crude prices as the strongest positive factor for the market.
He said Brent crude had fallen by around 10% to nearly $94 per barrel, primarily because of expectations that the US-Iran conflict could be resolved soon.
Vijayakumar also noted that falling oil prices were coinciding with a resilient Indian economy and improving corporate earnings. The combination of these factors could further strengthen the outlook for domestic equities.
However, the benefits will depend on crude prices remaining at lower levels. Any fresh escalation in the Middle East or failure of diplomatic efforts could trigger another increase in oil prices.
FIIs RETURN TO INDIAN MARKETS AFTER EXTENDED SELLING
The second major factor behind the rally is the renewed buying interest from foreign institutional investors.
After selling Indian equities for an extended period, overseas investors have turned net buyers over the past few trading sessions, providing fresh support to domestic markets.
Vijayakumar said FIIs had purchased equities worth Rs 20,834 crore in the cash market over the previous four trading sessions. He also highlighted that the pace of their buying had been increasing.
According to him, the improvement in foreign investor sentiment towards India is linked to lower crude prices, the resilience of the domestic economy and better corporate earnings.
He also pointed to expectations that the long-term capital gains (LTCG) tax could be abolished in the upcoming Union Budget as another factor influencing investor sentiment. This remains a market expectation and is not an announced government decision.
A sustained return of foreign investment could support large-cap stocks, particularly banking and financial companies that carry significant weight in benchmark indices. It could also improve overall market confidence following a prolonged period of overseas fund outflows.
Vijayakumar expects additional short-covering in large-cap shares, particularly banking and financial stocks, which could further strengthen the recovery.
However, he cautioned that domestic institutional investors have shown a tendency to sell during market rallies, raising the possibility of profit booking as share prices increase.
FIIs recorded net purchases for the fourth consecutive trading session on November 4, buying shares worth Rs 7,284.03 crore in the cash market. This followed net purchases of Rs 6,836.81 crore on November 3.
DEMOCRATS' US MIDTERM VICTORY RAISES HOPES OF REDUCED GLOBAL UNCERTAINTY
The third factor supporting Indian markets is the potential impact of the US midterm election results on the global economic environment.
The Democrats' gains could alter the balance of power in Congress, potentially making it more difficult for President Donald Trump to implement aggressive trade and tariff policies.
For emerging economies such as India, any reduction in international trade uncertainty could improve investor confidence.
There are also expectations that the changed political balance in Washington could increase pressure on the Trump administration to pursue a diplomatic solution to the Iran conflict. A breakthrough could ease concerns about global oil supplies and provide further support to crude prices.
Currency and bond market movements could also influence foreign investment flows. A weaker US dollar and moderation in American bond yields could make emerging-market investments relatively more attractive, potentially encouraging greater interest in Indian equities. However, this does not guarantee that foreign buying will continue.
Dr Ravi Singh, Chief Research Officer at Master Capital Services Ltd, said the US election results could have wider implications for global financial markets, including India.
He said a change in congressional control could restrict Trump's ability to introduce aggressive trade and tariff measures, reducing uncertainty surrounding international trade. This could improve sentiment towards emerging markets and encourage foreign institutional investment in Indian equities.
However, Singh cautioned that the impact would be indirect rather than immediate. Domestic corporate earnings, crude oil prices, currency fluctuations and geopolitical developments would continue to determine the direction of Indian markets.
There are also several reasons for investors to remain cautious. A change in congressional control does not automatically mean that American tariffs will be withdrawn or that the Iran conflict will end. Trump continues to exercise considerable executive authority over foreign policy and trade decisions, while any diplomatic breakthrough remains uncertain.
CAN THE MARKET RALLY CONTINUE?
The combination of declining crude prices, renewed FII buying and expectations of reduced global uncertainty has strengthened the near-term outlook for Indian equities.
Vijayakumar believes the positive trend could continue as favourable economic conditions support the market. However, he warned that the initial optimism surrounding the US election results could fade if political tensions in America persist.
He said that once the immediate reaction to the election results subsides, concerns could emerge over prolonged political confrontation in the US. Given Trump's approach, he could increasingly adopt a confrontational stance rather than become a politically weakened president.
For Dalal Street, the sustainability of the rally will largely depend on whether global conditions continue to improve, crude oil prices remain under control and foreign investors maintain their buying momentum.
While the latest developments have provided a significant boost to market sentiment, crude prices, currency movements and corporate earnings will remain critical in determining whether the recovery can be sustained.
