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The Indian stock market experienced a significant surge on January 28th, snapping a two-day losing streak. The Sensex and Nifty 50 indices closed in positive territory, driven primarily by gains in banking and financial stocks. While the Sensex initially saw a dramatic rise of over 1100 points intraday, it ultimately closed with a more moderate gain of 535 points (0.71%), reaching 75,901.41. The Nifty 50 also performed well, closing 128 points (0.56%) higher at 22,957.25. This positive performance, however, was not uniform across all market segments. The mid and small-cap indices underperformed, with the BSE Midcap index closing down 0.61% and the BSE Smallcap index down a more substantial 1.77%. This disparity resulted in a net loss of approximately ₹1 lakh crore in overall market capitalization for BSE-listed firms.
Several factors contributed to the market's upward trajectory. Firstly, the robust performance of banking heavyweights played a crucial role. HDFC Bank, ICICI Bank, Axis Bank, and Bajaj Finance were among the top contributors to the Sensex and Nifty 50 gains. This surge was further fueled by the Reserve Bank of India's (RBI) announcement of measures designed to inject ₹1.5 trillion into the market over time through open market operations (OMOs). The RBI's commitment to purchasing government securities (G-Secs) worth ₹60,000 crore in three tranches significantly boosted investor confidence in the banking sector and the broader market.
Secondly, the market's rebound from a recent oversold condition was a key factor. Following two days of losses, many analysts anticipated a correction and viewed the recent dip as a buying opportunity given India's strong long-term economic growth prospects. Experts highlighted the resilience of the market, supported by robust investor participation and improving fundamentals. The prevailing view was that valuations were not at extreme levels and remained underpinned by healthy corporate earnings, strong returns on equity (ROEs), and relatively low foreign institutional investor (FII) holdings. This perspective suggests that short-term volatility is expected to be counterbalanced by India's long-term growth story.
A third significant factor was the perceived fair valuation of large-cap stocks. The Nifty 50 index's 12% decline from its all-time high brought valuations to levels considered fair by many market analysts, encouraging selective buying in large-cap stocks. This correction, according to some investment strategists, presented an opportune moment for investors to acquire fundamentally strong, high-quality stocks. The observed outperformance of large-caps over mid- and small-caps was interpreted as a positive indicator of market health and stability. This shift in investor preference is consistent with a strategic focus on companies with robust fundamentals and lower risk profiles during periods of market uncertainty.
The anticipation of the upcoming Union Budget 2025 also contributed to the market's positive sentiment. Investors are keenly awaiting the budget's announcements, expecting measures to boost consumption and economic growth while maintaining fiscal prudence. The expectation of government initiatives to support private investment, incentives under PLI schemes, and public-private partnerships further fueled the pre-budget rally. Analysts anticipate that pro-growth policies and clarity on long-term taxation, coupled with effective fiscal deficit management, could stabilize market sentiment and potentially lead to further gains.
Finally, technical analysis also played a role in the market's movement. Technical analysts pointed to the significance of support levels and identified patterns suggesting a potential for further upward movement. However, differing opinions existed among technical analysts regarding the near-term outlook, with some suggesting a continued bearish trend below certain key support levels. This divergence underscores the inherent uncertainty and volatility within the market, even during periods of overall positive performance. The interplay of fundamental and technical factors demonstrates the complexities of market prediction and the need for a nuanced understanding of diverse market drivers.
Source: Sensex jumps 500 points; what drove the Indian stock market higher today? Explained with 5 factors