Key factors driving Sensex, Nifty recovery today after 3% crash over 6-day losing streak

Investor sentiment improved sharply after reports of US-Russia talks raised hopes of negotiations to end the Ukraine war. US President Donald Trump and Russian President Vladimir Putin agreed in a phone call to initiate peace talks, easing concerns over prolonged geopolitical instability.

The prospect of de-escalation triggered a rise in global equities -- S&P 500 futures gained 0.2 percent, Nasdaq futures rose 0.4 percent, and European stock futures climbed 1 percent. Asian stocks followed suit, with Japan’s Nikkei rising 1.1 percent and Hong Kong’s Hang Seng index up 1 percent to a fresh four-month high. The market rally overshadowed concerns about US inflation and rising Treasury yields, as investors shifted focus to geopolitical relief.

2. Markets absorb US inflation shock, Fed rate expectations steady

Despite a hotter-than-expected US inflation print, global equities rebounded as investors had already priced in a prolonged pause on US Federal Reserve interest rates. The US consumer price index (CPI) rose 0.5 percent in January, its highest increase since August 2023, while the annual CPI rose 3.0 percent, exceeding forecasts of 2.9 percent.

Treasury yields jumped following the data, with 10-year yields hitting 4.66 percent overnight before easing slightly to 4.615 percent. However, analysts quoted by Bloomberg said that markets were already positioned for a prolonged Fed rate hold, limiting the downside impact on equities.

3. India CPI inflation eases, boosting RBI rate cut hopes

India’s retail inflation fell to a five-month low of 4.31 percent in January, lower than economists' estimate of 4.6 percent and well below December’s 5.22 percent. The sharp decline, driven by a drop in food price inflation, strengthens expectations that the Reserve Bank of India (RBI) may cut rates as early as April. Economists said the inflation trajectory remains favourable for policy easing. Sakshi Gupta, principal economist at HDFC Bank, said in a Reuters report, “Inflation is expected to print between 4-4.5 percent over the next two months. The trajectory provides greater confidence that the RBI is likely to deliver another rate cut in the April policy.”

4. Oil prices extend losses, easing inflationary concerns

Crude oil prices continued their decline, with Brent crude slipping to $74.66 per barrel and US crude down to $70.88 per barrel, extending overnight losses of over 2 percent. The drop follows reports that US-Russia talks could ease geopolitical risks, potentially leading to a lifting of sanctions and smoother global supply flows. For India, a major oil importer, falling crude prices help ease inflationary pressures and reduce fiscal risks, further supporting domestic equities.

5. Chinese markets stabilise, boosting Asian sentiment

Asian markets also benefited from improved investor confidence in Chinese equities. Hong Kong’s Hang Seng index climbed 1 percent to a fresh four-month high, while Chinese blue-chip stocks remained stable. This shows that investors are finding value in tech and consumer stocks in the region.

6. Value buying in large-cap stocks

Following a 3 percent drop over six sessions, investors are selectively buying beaten-down large-cap stocks. Mutual fund inflows remained robust, helping stabilise the market after the recent correction. "The current weakness offers an opportunity to move from mid and smallcaps, which are still overvalued, to fairly valued largecaps,” said V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services.

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