After a day's break, stock markets returned to trading with a strong rally on Wednesday. The Sensex and Nifty jumped in early trade, with both benchmarks touching their highest levels in eight months.The gains are not being driven by just one development.
Foreign investors have returned in a big way, crude oil prices have eased from recent highs, companies have reported better-than-expected earnings and global investors are reassessing their exposure to artificial intelligence stocks. Together, these factors have improved the outlook for Indian equities.At around 9:48 am, the Sensex was up 1,360.61 points, or 1.68%, at 82,467.26.
The Nifty had gained 357.45 points, or 1.43%, to trade at 25,402.10.Here are five factors explaining why Dalal Street is rallying. FOREIGN INVESTORS ARE BACK, AND BUYING BIGOne of the biggest reasons behind the market's recovery is the return of foreign institutional investors (FIIs).Foreign investors had been a major source of pressure on Indian equities earlier this year.
Their sustained selling had weighed on benchmark indices, even as domestic institutions stepped in to support the market. That trend has now changed sharply.
FIIs have been net buyers in the cash market in each of the six trading sessions from November 2 to November 9.The buying has also gathered pace over the period. On November 2, foreign investors bought equities worth Rs 3,114.68 crore.
This increased to Rs 6,836.81 crore on November 3 and Rs 7,284.03 crore on November 4.The pace picked up further on November 5, when FIIs made net purchases worth Rs 14,974.68 crore. They bought another Rs 13,749.82 crore on November 6, followed by purchases worth Rs 7,212.22 crore on November 9.That takes their total net buying in the cash market to around Rs 53,170 crore over these six trading sessions, according to the figures shared.
The scale of these purchases has provided a significant boost to market sentiment.Dr V K Vijayakumar, Chief Investment Strategist at Geojit Investments Limited, said the Nifty 50 had surged 8.6% in the first six trading sessions of November, with aggressive FII buying of Rs 53,170 crore being the main trigger.The contrast with domestic investors is also worth noting. DIIs were net sellers in the cash market on all six sessions.
Their net selling stood at Rs 392.20 crore on November 2, Rs 3,678.85 crore on November 3, Rs 3,712.23 crore on November 4, Rs 10,444.54 crore on November 5, Rs 5,968.70 crore on November 6 and Rs 7,172.53 crore on November 9.In other words, foreign investors have been buying even as domestic institutions have booked profits. This shift matters because sustained foreign buying can provide support to large companies that carry significant weight in benchmark indices.Vijayakumar expects foreign buying to continue, although he also cautioned that higher US inflation and bond yields, along with domestic profit booking, could limit the pace of gains.FALLING CRUDE PRICES OFFER RELIEF TO INDIAThe second important factor is the sharp fall in crude oil prices.India imports a large part of the crude oil it consumes.
This makes the country vulnerable to sudden increases in global oil prices. When crude becomes expensive, the import bill rises, putting pressure on the trade balance and the rupee.
It can also increase fuel costs, transport expenses and input costs for companies.A decline in crude prices, therefore, offers some relief to the Indian economy and corporate India.Brent crude futures fell to a two-month low of $89.16 per barrel on Tuesday after US officials played down the need for further major military action against Iran. Comments from US President Donald Trump suggesting that the conflict could be nearing an end have also helped ease concerns about prolonged supply disruptions.The concern had been that a prolonged conflict could threaten oil supplies and push prices higher.
Any indication that tensions may ease reduces some of that risk.Brent crude was trading at around $92.53 per barrel on Wednesday morning, while US WTI crude stood at $86.71. Prices were higher in early trade, but remained well below their recent levels.For India, lower oil prices can help ease imported inflation, reduce pressure on the rupee and improve the outlook for companies that depend on fuel and energy.
This is one reason why the easing in crude prices has become an important support for the market rally.Vijayakumar also identified the drop in Brent crude prices as an additional macroeconomic relief for India.BETTER-THAN-EXPECTED Q2 RESULTS ARE SUPPORTING THE RALLYThe market rally is not just about foreign money or global developments. Corporate earnings have also provided a strong reason for investors to buy Indian shares.Companies have reported better-than-expected results for the July-September quarter, strengthening the case for a recovery in earnings.Vijayakumar said the real fundamental support for the rally had come from the stronger-than-expected second-quarter results.He pointed to nearly 24% earnings growth in the Nifty 50 in the second quarter, the highest in 12 quarters.
Stronger earnings also help make valuations look more reasonable because investors are paying for companies that are now generating higher profits.This is important because markets cannot keep rising on sentiment alone. For a rally to sustain, companies need to show that their businesses are growing and that profits can support their share prices.The improvement in earnings has helped investors become more confident about the outlook for Indian companies.
It has also raised the possibility of an upgrade to earnings estimates for FY27.Vijayakumar said the stronger earnings had compressed the Nifty 50's forward price-to-earnings ratio to more reasonable levels, adding to the case for further gains.THE GLOBAL AI SELL-OFF HAS HELPED INDIA'S RELATIVE APPEALAnother factor working in India's favour is the changing mood around artificial intelligence investments.Global investors have started reassessing the enormous amounts being spent on AI infrastructure and data centres. Concerns about the returns on these investments, along with the possibility of greater regulation, have triggered a correction in several technology-heavy markets.This has affected markets such as the US, South Korea, Japan and Taiwan, which have greater exposure to technology companies, semiconductor manufacturers and the global AI hardware supply chain.India's stock market has a relatively lower direct exposure to this part of the AI trade.
It does not have the same concentration of large semiconductor manufacturers and AI hardware companies as some of these markets.That difference has helped Indian equities look relatively more attractive as global investors reassess their portfolios.Vijayakumar said the weakening of the AI trade had helped trigger a positive change in the global investment environment for India. The shift has also coincided with foreign investors returning to Indian equities.This does not mean Indian technology companies are insulated from AI-related disruption or that global volatility cannot affect domestic shares.
But in the current phase, India's lower exposure to the global semiconductor and data-centre investment cycle has helped it stand apart from some of the worst-hit markets.BUYING IS SPREADING ACROSS THE MARKETThe latest session also suggests that investors are not limiting their purchases to just a handful of heavyweight stocks.In early trade on Wednesday, all 30 Sensex constituents were trading higher. IndiGo led the gains, followed by Mahindra & Mahindra, State Bank of India, Axis Bank and HDFC Bank.The strength was also visible in the broader market.
The Nifty 100, Nifty 200 and Nifty 500 were all higher, while the Nifty Midcap and Smallcap indices also advanced.Sectorally, PSU banks, private banks, automobiles, financial services and consumer durables were among the stronger performers. This suggests that buying interest has spread across several parts of the market, rather than being restricted to a few large stocks.Vijayakumar expects the next leg of the rally to be led by large-cap stocks, particularly in banking and financial services, telecom, capital goods, select automobile companies and pharmaceutical majors.However, a rise in market indices does not mean every stock or sector will benefit equally.
Investors will need to watch whether the buying continues to broaden and whether earnings support the higher valuations.CAN MARKET RALLY CONTINUE?The recent recovery has brought together several favourable developments for Indian equities: strong foreign inflows, easing crude prices, better corporate earnings and a change in global investment sentiment.Vijayakumar believes the rally has further room to run, with foreign buying likely to provide resilience to large-cap stocks.There are, however, risks. Higher US inflation has pushed expectations of interest-rate cuts further into question.
The 10-year US Treasury yield has also moved back towards 5%, which could make dollar assets more attractive and limit the flow of money into emerging markets such as India.Domestic institutional investors booking profits could also restrain gains. Crude prices remain sensitive to developments in the Middle East, while any deterioration in global risk sentiment could affect foreign investor flows.For now, the combination of foreign buying and improving earnings has given Dalal Street a strong push.
Whether the rally can continue will depend on how long these favourable conditions last.(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