Dalal Street made a strong comeback on Wednesday, reversing previous session’s losses as improving tech sentiments, firmer rupee, and other geopolitical cues boosted investor confidence. BSE Sensex jumped 553 points to 77,603.57 in early trade, while NSE Nifty gained 148.15 points to 24,198.40. The recovery came a day after the Sensex had dropped 561.46 points, or 0.72%, to close at 77,054.94, while Nifty fell 158.95 points, or 0.66%, to settle at 24,052.05.These gains came despite crude oil prices climbing back above the $80-per-barrel mark. The rally was also lifted by global cues like hopes of the US Federal Reserve adopting a less aggressive monetary policy stance, alongside positive developments and a rebound in Asian technology stocks.Here’s what is driving today’s market rally:
Rising rupee
Rupee strengthened by 5 paise to 96.11 against the US dollar in early trade after slipping to 96.16 in the previous session. Forex traders said that the recovery was aided by a weaker dollar, although gains remained capped by higher crude oil prices and continued foreign fund outflows.The dollar index, which measures the greenback against a basket of six currencies, was down 0.11% at 100.81.According to Anil Kumar Bhansali, head of treasury and executive director at Finrex Treasury Advisors LLP, rupee had come under pressure on Tuesday due to surging crude oil prices, higher US Treasury yields and geopolitical tensions. The expert expects the currency to trade in the 95.90-96.50 range.
Easing Strait of Hormuz situation
Geopolitical developments remained in focus after US President Donald Trump withdrew the proposed 20% transit fee on cargo passing through the Strait of Hormuz, replacing it with trade and investment agreements with Gulf countries.Market participants viewed the decision as a positive development after concerns over higher shipping costs had weighed on sentiment. Brent crude eased towards the $85-a-barrel mark after the announcement, although it remained elevated at around $85.6 per barrel.At the same time, the US announced a full blockade on ships travelling to and from Iranian ports or carrying Iranian cargo, while keeping the Strait of Hormuz open for all other maritime traffic.Iran responded by threatening to halt all energy exports from the Middle East saying, “The export of oil and gas from the region will be either for everyone or for no one.”Separately, reports that Trump urged Israeli Prime Minister Benjamin Netanyahu to begin withdrawing Israeli forces from southern Syria and Lebanon added to hopes of diplomatic engagement in the region, although broader geopolitical uncertainty continues to persist.
Returning FIIs
While Foreign Institutional Investors (FIIs) sold equities worth Rs 739.69 crore on Tuesday, broader foreign investor sentiment has improved this month.After months of sustained selling, foreign portfolio investors (FPIs) have turned net buyers in July, investing $2.59 billion (Rs 24,662 crore) during the first 10 days of the month.Equities accounted for $1.6 billion, or more than 61%, of total inflows, followed by investments through the Fully Accessible Route (FAR) worth $697 million and debt under the general limit amounting to $340 million.The turnaround has been supported by stable rupee and a shift in investment preferences away from semiconductor-heavy markets.
Asian equities and technology stocks rebound
Asian markets rallied after softer-than-expected US inflation data strengthened expectations that the Federal Reserve may adopt a less aggressive monetary policy stance in the coming months.MSCI’s Asia Pacific equities gauge climbed 2%, on course for its biggest gain in a month, with technology stocks leading the advance.South Korea’s Kospi surged around 7%, while Japan’s Nikkei 225 and Hong Kong’s Hang Seng also traded higher. Shanghai’s SSE Composite, however, remained lower.The rebound in technology shares also supported sentiment. SK Hynix jumped 11%, while an Asian semiconductor index gained 3.5% as investors returned to chipmakers after recent volatility.Kazuhiro Sasaki, Head of Research at Phillip Securities Japan, said, “Volatility has died down and we’re seeing some repurchasing in the chip sector. But rather than a full-blown return to tech, we’re seeing sector rotation continue — banks are attractive, especially after strong earnings in the US.”US markets also ended higher overnight, with the S&P 500 rising 0.38% and the Nasdaq advancing 0.90%.
Softer US inflation boosts rate-cut hopes
Investor sentiment also received support after US consumer inflation came in below expectations.US consumer price inflation eased to 3.5% in June, lower than the market expectation of 3.8%, reinforcing hopes that the Federal Reserve could adopt a less aggressive monetary policy stance.Ponmudi R, CEO of Enrich Money, said, “The softer-than-expected inflation reading has reinforced expectations that the Federal Reserve could adopt a less aggressive monetary policy stance in the coming months, offering some relief to global risk assets despite the heightened geopolitical uncertainty.”Rajesh Palviya, Head of Research at Axis Direct, also noted that supportive global cues and expectations of a more accommodative Federal Reserve policy helped improve investor sentiment.Meanwhile, despite Tuesday’s decline, technical analysts said the Nifty continues to hold above the key 23,900 support level, with the broader market bias remaining sideways to bullish in the near term.
