Dalal Street rallied in early trade as the stock market extended its rally for a second consecutive session on Tuesday, with the Sensex rising nearly 700 points in early trade and the Nifty moving above 23,600.The gains came a day after the benchmark indices recorded a strong rally, with the Sensex surging over 1,200 points and the Nifty gaining nearly 400 points on Monday.At 9.28 am, the BSE Sensex was trading at 76,400.68, up 707.90 points or 0.94%. The NSE Nifty 50 gained 180.80 points, or 0.77%, to trade at 23,621.60.The continuation of the rally reflects improving investor sentiment, supported by a combination of domestic and global factors.
These include expectations of stronger corporate earnings, foreign investors turning buyers, lower crude oil prices and a shift in global investor interest away from AI-linked stocks. Here are the key reasons behind the market's gains.STRONG MOMENTUM FROM MONDAY'S RALLYThe market's positive start on Tuesday follows a powerful rally in the previous session.
On November 2, the Sensex jumped 1,233.25 points, or 1.66%, to close at 75,692.78. The Nifty gained 387.70 points, or 1.68%, to settle at 23,440.80.
The Nifty ended Monday's session at its day's high after a strong gap-up opening and sustained buying interest. It also formed a strong bullish, Marubozu-like candle, indicating the strength of buying during the session.Reliance Industries was a major contributor to Monday's gains.
Its shares surged around 11.6%, providing significant support to the benchmark indices.The sharp move was supported by strong second-quarter results, delivery-based buying worth around Rs 6,413 crore and short covering, according to Dr V K Vijayakumar, Chief Investment Strategist at Geojit Investments Limited.The strength of Monday's rally has carried into Tuesday's session, with investors continuing to buy several large-cap stocks.FOREIGN INVESTORS TURNING BUYERSForeign institutional investors turning buyers is another factor supporting the market. Their buying activity comes after a period of pressure on Indian equities from overseas outflows.Vijayakumar said the change in foreign investor flows, along with a weakening of the global AI trade, has the potential to accelerate the ongoing rally.A shift in foreign investor sentiment can be important for Indian equities because overseas institutional flows influence demand for large-cap stocks and benchmark indices.
If buying continues, it could provide additional support to the market.GROWING EXPECTATIONS OF LTCG TAX RELIEFExpectations of a possible review of the long-term capital gains (LTCG) tax regime have also gained momentum, with calls for tax relief growing among market participants. The issue has gained further attention after reports said Sebi has recommended that the government scrap LTCG tax on equity investments made by foreign portfolio investors (FPIs).The regulator has also proposed relief for domestic mutual fund investors.
According to the recommendations, switching from one mutual fund scheme to another should not be treated as a taxable sale if the investor has held the units for more than a year. The aim is to allow investors to move between schemes without triggering an LTCG tax liability, potentially encouraging them to remain invested in domestic mutual funds.The proposals are part of Sebi's pre-Budget recommendations and are not binding.
The final decision rests with the government. The recommendations come amid sustained foreign investor selling and concerns about the relative attractiveness of Indian equities compared with other emerging markets.Finance Minister Nirmala Sitharaman has also acknowledged the growing concerns around equity taxation.
On Monday, she said the government would consider the calls for a review, noting that circumstances had changed and concerns among investors had become louder."The circumstances have changed and, therefore, the voices of concern are louder. I quite appreciate that.
So, I'll consider all this," she said at an event in Mumbai.Sitharaman, however, stopped short of promising any tax cuts and stressed that the concerns of domestic investors would also have to be considered. She said sustaining India's economic growth was important and that the government needed capital to support it.The possibility of LTCG tax relief is therefore emerging as an additional factor for investors to watch ahead of the next Union Budget.
BRENT CRUDE FALLS TO AROUND $104The decline in crude oil prices has also improved the outlook for Indian equities. Brent crude has fallen to around $104 per barrel, according to Vijayakumar, easing concerns around energy costs.India imports a large part of its crude oil requirements, making movements in international oil prices an important factor for the domestic economy and financial markets.
A sustained decline in crude prices can ease pressure on the country's import bill and reduce concerns around inflation and costs for businesses.At the time of reporting on Tuesday morning, Brent crude was trading at $104.78 per barrel, while WTI crude was at $96.68.STRONG Q2 EARNINGS SUPPORT SENTIMENTCorporate earnings are providing another source of support. Vijayakumar said the continuing flow of good second-quarter results is helping improve the market outlook.The sharp rally in Reliance Industries on Monday was one example of how strong earnings can influence investor interest in heavyweight stocks.
The company's shares surged around 11.6%, supported by its quarterly performance as well as substantial delivery-based buying and short covering.Investors will continue to track corporate results to assess whether earnings growth can support current valuations and sustain the market's recovery.WEAKENING AI TRADE SUPPORTS INDIAN EQUITIESAnother global factor highlighted by Vijayakumar is the further weakening of the AI trade.The recent correction in AI-linked stocks has prompted a shift in global investor interest. Vijayakumar said this trend could support Indian equities, particularly if investors look beyond the stocks and markets that had benefited from the AI-led rally.However, he cautioned against interpreting the trend as a collapse in the AI sector."While the AI trade has slightly weakened, it is important to understand that this is only a correction, not yet a crash.
Results of many AI companies continue to be good. So watch out for the trends in this segment," he said.He also said the outcome of the US mid-term elections due on Wednesday and its possible impact on geopolitical dynamics would be closely watched by markets in the coming days.WHAT SHOULD INVESTORS WATCH NEXT?While the short-term trend remains positive, analysts have advised investors to keep an eye on key technical levels and avoid chasing the rally.Shrikant Chouhan, Head of Equity Research at Kotak Neo, said buying on dips and selling on rallies would be the ideal strategy for day traders.For the Nifty, he identified 23,300 and 23,200 as key support levels.
On the upside, he sees the index moving towards 23,500-23,650 if the positive trend continues.However, Chouhan cautioned that a fall below 23,200 could weaken the market's short-term momentum and potentially push the Nifty towards 23,100-23,000.Vijayakumar, meanwhile, said the circumstances were favourable for the continuation of the rally, citing lower crude prices, foreign investor buying and corporate earnings. The coming sessions will show whether these factors can sustain the recovery after two strong days of gains.(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.
It is advisable to consult a qualified broker or financial advisor before making any actual investment or trading choices.)- Ends