Indian Stock Market Surges, Nifty Rebounds Above 24,800: What Drives the Rally?
Indian stock markets experienced a strong rebound on Friday, May 22, recovering all losses from Thursday’s sharp decline. The recovery was led by technology and consumer goods stocks, with optimism around corporate earnings and easing U.S. Treasury yields fueling investor sentiment across the market.
The Sensex rose 769 points, or 0.95%, to close at 81,721, while the Nifty 50 gained 243 points, or 1%, to settle above 24,800 at 24,853. Despite the strong session, both indices ended the week with declines of over 0.65%.
The broader market also showed resilience, with the Nifty Midcap 100 rising 0.67% and the Nifty Smallcap 100 gaining 0.80%, closing at 17,643 points. Over 100 Nifty 500 stocks closed in green, with Anil Ambani group stocks leading the charge. Reliance Power surged 16.4%, while other group stocks, including Reliance Infrastructure and Reliance Home Finance, gained between 10% and 16.4%.
What Drives the Recent Rebound in the Indian Stock Market?
The rebound appears to be driven by a ‘sell-on-rise and buy-on-dips’ pattern, as investors continue to see value in the market despite the lack of clear catalysts. The market has been oscillating between gains and losses, reflecting uncertainty around key global developments, including U.S.-India trade negotiations and concerns about the U.S. fiscal position.
Short covering is a key factor in the recent rise, as investors anticipate healthy economic growth, improved corporate earnings, potential interest rate cuts, and a favorable monsoon season. Avinash Gorakshakar, head of research at Profitmart Securities, noted that market momentum is currently driven by liquidity rather than fundamentals. He expects greater clarity after the first and second quarters of the current financial year, with a more defined trend likely by September as macroeconomic indicators and corporate earnings provide direction.
The weakening U.S. dollar is another contributing factor. The dollar index has declined by over 1% this week, setting the stage for its worst weekly loss since April 7. A weaker dollar can encourage foreign capital inflows into emerging markets like India, which has been a key driver of the recent rally.
Despite the near-term volatility, the medium to long-term outlook for the Indian stock market remains positive. India’s macroeconomic stability and the strong influx of retail investors are key factors in this outlook. This environment encourages investors to accumulate quality stocks during market corrections.
Is the Rally Sustained?
Experts caution that a significant rally may not be in the immediate future. A consolidation phase is expected as the market digests global developments, macroeconomic data, and Q4 earnings. Gorakshakar noted that the market is expected to stabilize in the coming months, reacting to the progress of the monsoon season, quarterly results, and broader economic indicators.
Foreign institutional investors (FIIs) are a key factor in the market’s trajectory. Sustained FII buying, which contributed to the recent rally, appears to have slowed. Vijayakumar, Chief Investment Strategist at Geojit Investments, warned that FIIs may again turn sellers if the global environment becomes unfavorable. FIIs are closely tracking the dollar index and responding to currency volatility, which could influence future buying activity.
While Q4 earnings were mixed, investors are now looking for positive signs in the April-June quarter results. The recent downgrade of U.S. creditworthiness could also create opportunities for foreign capital inflows into emerging markets, including India, making the current phase an attractive entry point for investors.
Amid global headwinds, the market’s trajectory will depend on economic growth, inflation trends, and monetary policy decisions. The silver lining for the market is India’s strong macroeconomic fundamentals, particularly resilient growth and declining inflation, which are reflected in the performance of key sectors like financials, telecom, and aviation.
As the market continues to navigate uncertainty, the focus will remain on macroeconomic indicators, corporate earnings, and global developments that could shape the future of the Indian stock market.