NEW DELHI: The Indian equity market has shown a notable recovery over the past four sessions, with both the BSE Sensex and NSE Nifty50 gaining about 3% each. This upward movement comes as a contrast to the bearish sentiment that has dominated the market for several months.
The Thursday surge was influenced by the Federal Reserve's decision to maintain interest rates at 4.25%–4.50% during its second policy meeting of 2025, alongside the expectation of two quarter-percentage-point rate cuts by the end of the year, which has bolstered investor confidence.
At the close of trading on Thursday, the Sensex was up by 899.01 points or 1.19 percent at 76,348.06, and the Nifty was up by 283.05 points or 1.24 percent at 23,190.65.
Vinod Nair of Geojit Financial Services attributed this rally to the consistent fall in the US dollar index, which has reduced the intensity of foreign institutional investor (FII) selling, while domestic institutional investor (DII) buying remains robust.
FIIs turned net buyers on Thursday, buying shares worth Rs 3,294 crore (net value).
However, Anand K. Rathi of MIRA Money cautioned that the bulls are not fully back in the market, indicating that the benchmarks are still down by 11% from their September highs.
“What we are witnessing is a correction back to a level of valuation that I believe is typical for India. During the 'super bull market', forward earnings price-to-earnings (P/E) ratios reached 23-24. Currently, we've corrected to below the average P/E of 18-19. I believe we are returning to a '10-year average P/E', a measure of a stock's valuation, which may be around 20 or 21,” stated Rathi.
He added that this week’s surge does not necessarily indicate that the rally would continue. “We need further confirmation from companies that things have returned to normal and that earnings growth is expected to be around 12-14 percent. This cautious approach is necessary to navigate the uncertainties in the market,” said Rathi.
The Indian equity market has faced significant pressure since late September 2024 due to various factors, including U.S. President Donald Trump’s tariff actions, substantial FII outflows amidst a weakening rupee, slowing economic and corporate earnings growth, and expensive valuations. These elements have contributed to the market's volatility and the cautious outlook among investors.