Why the markets are soaring? Key drivers behind today's Nifty and Sensex rebound

Indian equity markets rebounded strongly on Thursday, with the Sensex nearing the 82,000 mark and the Nifty crossing 24,750. A positive global outlook following US Federal Reserve Chair Jerome Powell's optimistic comments about the US economy and strong foreign institutional investor (FII) inflows fueled the rally. At 2:15 pm, the Sensex was up over 1,000 points, while the Nifty gained nearly 300 points, signalling a broad-based recovery.

Domestic Triggers: IT and PSU banking stocks drive gains

Heavyweight IT stocks led the charge, with TCS, Infosys, Wipro, and Tech Mahindra posting gains of one to 2 per cent. PSU banks also surged on hopes of a dovish Reserve Bank of India (RBI) monetary policy stance tomorrow. The Bank Nifty edged closer to its all-time high, driven by investor optimism in the financial sector.

FIIs shift gears to net buying
FII activity turned positive in December, reversing the massive Rs 1.6 lakh crore outflows seen in October and November. FIIs have infused Rs 5,224 crore month-to-date, including Rs 1,798 crore on Wednesday alone. Analysts attribute the inflows to easing selling pressure and improving growth projections in the second half of FY25.

Positive macros support sentiment
The US Federal Reserve’s indication of economic resilience has buoyed global markets, with the Dow Jones Industrial Average crossing the 45,000 mark. Domestically, hopes for accommodative guidance from the RBI, even without an immediate rate cut, have bolstered sentiment.

Caution ahead of key events
While the current rally signals strong investor confidence, analysts urge caution due to stretched valuations. Factors such as RBI’s policy guidance and global macroeconomic trends, including US economic data, will determine the sustainability of this momentum.

Sectoral gains and outperformers

Banking and information technology stocks emerged as top contributors, supported by strong momentum in PSU banks. Analysts flagged buy signals in stocks like Lupin, HDFC Bank, and Aurobindo Pharma. The IT sector also showed resilience, helping lift broader market indices.

Caution amid optimism

Despite the strong rally, analysts urged caution overstretched valuations in both domestic and US markets. While declining inflation and robust growth have created a favourable backdrop, high valuations could pose risks.

Outlook: Momentum hinges on policy cues

The market’s trajectory will likely depend on the upcoming RBI policy decision and US economic data. Sustained FII inflows and stable macroeconomic factors could further support the rally. However, investors are advised to remain vigilant amid rising valuations and potential market volatility.