A sharp fall in crude oil prices, a sudden return of foreign investors to Indian equities and hopes of easing global tensions have given Dalal Street a strong reason to cheer. The Sensex jumped nearly 1,400 points in early trade on Thursday, while the Nifty climbed towards 24,350, extending the previous session's gains.The rally comes at a time when some of the biggest concerns weighing on Indian markets are showing signs of easing.Crude oil has retreated from levels above $100 a barrel, foreign institutional investors have turned buyers after sustained selling, and the outcome of the US midterm elections has raised expectations of a possible shift in Washington's approach to trade and the Iran conflict.The BSE Sensex was trading at 78,651.14, up 1,349.74 points or 1.75%, at 9:24 am.
The NSE Nifty 50 gained 375.70 points or 1.57% to trade at 24,336.30 at 9:25 am.The rally was broad-based, with buying seen across almost all sectors and heavyweight stocks. Among the Sensex constituents, IndiGo led the gains, rising 5.07%, followed by Bajaj Finance (4.63%), Asian Paints (4.18%), Mahindra & Mahindra (3.84%) and Maruti Suzuki (3.71%).On the losing side, there were no stocks in the red among the 30 Sensex constituents in the 9:24 am snapshot.Sectorally, Nifty Financial Services ex-Bank was the top performer, gaining 2.72%, followed by Nifty Financial Services 25/50 (2.41%), Nifty Auto (2.04%) and Nifty Realty (1.94%).
Nifty Private Bank rose 1.57%, Nifty PSU Bank gained 1.55%, while Nifty IT advanced 1.60%. Nifty FMCG and Nifty Metal were up 0.84% each.
The broader markets also participated in the rally, with Nifty 100 rising 1.47%, Nifty 200 gaining 1.37% and Nifty 500 advancing 1.32%. Here are three factors behind the sharp rally.FALLING CRUDE OIL PRICES OFFER RELIEFThe biggest positive for Indian markets is the sharp correction in global crude oil prices.
Brent crude was trading at $93.59 per barrel, down 1.09%, while US West Texas Intermediate (WTI) crude fell 1.53% to $86.77, according to the latest market snapshot. The decline comes amid growing hopes that the US-Iran conflict could move towards a resolution following the US midterm election outcome.
Concerns over the conflict had pushed oil prices higher, raising worries about supply disruptions and the impact on oil-importing economies such as India.For India, cheaper crude can make a meaningful difference. The country imports most of its oil requirements, making its economy vulnerable to sharp movements in global energy prices.
A sustained decline could lower the import bill, ease pressure on the current account deficit and help contain inflation.It could also offer some relief to companies facing high fuel and raw material costs.Dr V K Vijayakumar, Chief Investment Strategist at Geojit Investments Limited, called the fall in crude the strongest positive for the market."The strongest positive for the market is the sharp 10% fall in Brent crude to around $94 level," he said, adding that the decline was driven by hopes that a resolution to the US-Iran conflict was likely soon.Vijayakumar also pointed out that the fall in oil prices was coming at a time when the Indian economy was showing resilience and corporate earnings were improving. Together, these factors could strengthen the outlook for Indian equities.However, the benefit for India will depend on whether crude prices remain at lower levels.
Any renewed escalation in the Middle East or a breakdown in diplomatic efforts could push oil prices higher again.FIIs RETURN TO BUYING AFTER SUSTAINED SELLINGThe second major factor is the return of foreign institutional investors (FIIs) to Indian equities. After a prolonged spell of selling, overseas investors have turned buyers over the last few trading sessions, providing support to the market.Vijayakumar said FIIs had bought equities worth Rs 20,834 crore in the cash market over the last four trading days.
More importantly, he noted that the buying volume was increasing steadily.He believes the change in foreign investor sentiment towards India is linked to the combination of falling crude prices, economic resilience and improving corporate earnings."This, and the hope that LTCGs tax may be abolished in the coming Budget, has completely changed the FII's stance towards India," Vijayakumar said.The reference to long-term capital gains (LTCG) tax is an expectation highlighted by the market strategist, not an announced government decision.A sustained return of FII buying could provide support to large-cap stocks, particularly banking and financial companies, which have a significant weight in benchmark indices. It could also help improve overall market sentiment after a period of foreign outflows.Vijayakumar expects further short-covering in large-cap stocks, led by banking and financial majors, which could add to the rebound.However, he also flagged a possible hurdle.
Domestic institutional investors have been showing an inclination to sell on rallies, raising the possibility of profit booking as markets move higher.FIIs remained net buyers for a fourth consecutive session, purchasing equities worth Rs 7,284.03 crore in the cash market on November 4, following net buying of Rs 6,836.81 crore on November 3.DEMOCRATS' US MIDTERM WIN RAISES HOPES OF EASING GLOBAL UNCERTAINTYThe third factor is the possible impact of the US midterm election outcome on global markets. The Democrats' gains could change the balance of power in Congress and potentially make it harder for President Donald Trump to push through aggressive trade and tariff policies.For emerging markets such as India, any reduction in global trade uncertainty could improve investor sentiment.
There are also expectations that the changed political balance could increase pressure on the Trump administration to pursue a diplomatic resolution to the Iran conflict. If that happens, it could ease concerns over oil supplies and provide further support to crude prices.The potential benefits could extend to foreign investment flows as well.
If the dollar weakens and US bond yields moderate, emerging-market assets could become relatively more attractive to global investors. This could create conditions for greater interest in Indian equities, although it does not guarantee that FII buying will continue.Dr Ravi Singh, Chief Research Officer at Master Capital Services Ltd, said the election outcome could have implications for global financial markets, including India.He said a shift in congressional control may limit Trump's ability to implement aggressive trade and tariff policies, potentially easing uncertainty around global trade.
This, in turn, could improve investor sentiment towards emerging markets and support foreign institutional inflows into Indian equities.Singh, however, cautioned that the impact would be indirect rather than immediate. Domestic corporate earnings, crude oil prices, currency movements and geopolitical developments would continue to be the key drivers of Indian markets.There are also reasons to remain cautious.
A change in congressional control does not automatically mean that US tariffs will be rolled back or that the Iran conflict will end. Trump retains significant executive powers over foreign policy and trade decisions, while any diplomatic breakthrough remains uncertain.CAN THE RALLY SUSTAIN?The combination of falling crude prices, renewed FII buying and hopes of lower global uncertainty has improved the near-term outlook for Indian equities.Vijayakumar believes the bullish trend could continue as economic tailwinds strengthen.
However, he also warned that the initial positive reaction to the US election results could weaken if political conflict in the US persists."After the initial reaction to the US election results weakens, there will be concerns surrounding prolonged political conflict in the US, since Trump being what he is, is likely to turn Mr Veto rather than lame duck president," he said.For Dalal Street, the key will be whether the recent improvement in global conditions translates into sustained lower oil prices and continued foreign investor buying. The latest developments have provided a boost to sentiment, but the direction of crude, currency movements and corporate earnings will remain crucial to whether the rally can hold.(Disclaimer: The views, opinions, recommendations, and suggestions expressed by experts/brokerages in this article are their own and do not reflect the views of the India Today Group.
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