The Indian stock market saw healthy gains for the second consecutive session on Monday, December 22, on the rupee’s rise against the US dollar and positive global cues on expectations of further rate reduction by the US Federal Reserve in January.
The Sensex jumped over 500 points to an intraday high of 85,467, while the Nifty 50 reclaimed 26,154 on Monday. Thus, in two sessions, the 30-share pack has gained nearly 1,000 points. Not only the frontline indices, but the second-run mid and small-cap indices also saw healthy gains of up to 1% on Monday. The overall market capitalisation of BSE-listed firms rose to nearly ₹475 lakh crore from ₹466 lakh crore on Thursday, making investors richer by nearly ₹9 lakh crore in just two sessions.
Why is the Indian stock market rising?
Let’s take a look at the five key factors behind the rise in the Indian stock market:
1. Rupee’s rebound below the 90 level
The Indian rupee rose by 22 paise to 89.45 against the US dollar in early trade on Monday, supported by foreign fund inflows. RBI, too, reportedly has been aggressively selling dollars to support the domestic currency.
The Indian rupee hit a record low, breaching the 91 mark against the US dollar on heavy foreign capital outflow. Improved rupee’s health seems to have boosted market sentiment.
“The rupee has depreciated past 91 largely due to global dollar strength, capital outflows, and India’s net short forward position. While headline forex reserves are around $700 billion, net reserves after adjusting for forward positions are closer to $635 billion. Further pressure on the rupee cannot be ruled out and needs close monitoring,” Nilesh Shah, MD of Kotak Mahindra AMC, told Mint.
2. FII buying
Foreign institutional investors (FIIs) have been buying Indian stocks in the cash segment for the last three consecutive sessions. On Friday, December 19, they bought Indian stocks worth ₹1,830.89 crore. Overall, in three sessions, they have invested nearly ₹3,600 crore.
“Two factors that can accelerate this rally are the sharp reversal in the rupee and the FIIs turning buyers in the cash market. These two factors, which are mutually reinforcing, can trigger short covering in the market, helping the benchmark indices to scale higher highs,” said VK Vijayakumar, Chief Investment Strategist, Geojit Investments.
“The Goldilocks domestic economic set-up and the potential uptrend in earnings growth can provide the fundamental support to the possible market up move. However, the high valuations will restrain the rally and keep the bulls in check,” said Vijayakumar.
3. Positive global cues
Positive global cues underpinned domestic market sentiment. An up to 1% gain in the Nasdaq and the S&P 500 indices overnight influenced the mood in Asian markets too. Japan’s Nikkei and Korea’s Kospi jumped 2%.
Global markets are rising on the prospects of further rate hikes by the US Federal Reserve and the end of the Russia-Ukraine war, while a softer US dollar is underpinning sentiment in emerging markets, such as India.
4. Russia-Ukraine peace talks
According to a Reuters report, U.S. special envoy Steve Witkoff said on Sunday that recent talks with Russian negotiators were productive, raising hopes that the prospects of an end to the almost four-year-long Russia-Ukraine war could be near.
“Over the last two days in Florida, the Russian Special Envoy Kirill Dmitriev held productive and constructive meetings with the American delegation to advance President Trump’s peace plan on Ukraine,” Witkoff wrote on social media X.
“Russia remains fully committed to achieving peace in Ukraine. Russia highly values the efforts and support of the United States to resolve the Ukrainian conflict and re-establish global security,” Witkoff wrote.
The Russia-Ukraine war started on 24 February 2022, when Russia launched a full-scale invasion of Ukraine. A potential resolution to the biggest European conflict since World War II will be a significant positive for markets across the globe, as it may result in the lifting of US sanctions on Russian oil, normalising global supply chains of energy, agricultural commodities, metals, and other critical materials.
5. Technical factor
According to Axis Securities, the trend-deciding level for the day is 25,947. If Nifty trades above this level, it may further rally up to 26,013-26,060-26,126 levels. However, if it trades below 25,947, some profit booking may be seen, which can drag the index to 25,900-25,834-25,787 levels.
Aakash Shah, a technical research analyst at Choice Equity Broking, highlighted that the Nifty 50 continues to hold above the important 25,800-26,850 support zone, keeping the short-term trend positive.
“Immediate support is placed at 25,800, while resistance is seen at 26,100-26,150. A sustained move above resistance could lead to further upside, while failure to hold support may result in consolidation,” said Shah.