Indian equity markets bounced back on Tuesday, recovering from a seven-month low hit yesterday, as global risk sentiment improved and domestic factors provided some relief. Reports of phased US tariffs, easing concerns over inflation, and a stronger rupee contributed to a more optimistic outlook. The recovery was led by gains in Adani group stocks and signs of stability in large-cap valuations.
At close, the BSE Sensex was up 170 points or 0.2 percent at 76,500, while the NSE Nifty rose 90 points or 0.4 percent to 23,176. Earlier in the session, both indices had climbed as much as 0.7 percent.
1. Global risk sentiment improves: Markets found some relief globally as reports indicated that the Trump administration may implement gradual tariff hikes in phases instead of a large increase at once, reducing inflationary risks.
Asian stocks, including those in China, Hong Kong, Sydney, and Taiwan, registered gains. US equity futures extended Monday's modest recovery. S&P 500 futures rose further 0.5 percent today, after the index ended up 0.2 percent.
The Bloomberg Dollar Spot Index slid as much as 0.4 percent, providing much-needed relief to emerging markets. US treasury yields remained stable, with the 10-year yield little changed at 4.78 percent. Market participants are also watching the US December Producer Price Index (PPI) data due later today for further cues on Federal Reserve policy.
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2. Rupee and oil prices stabilise: The Indian rupee closed a tad weaker today at 86.63 but earlier showed some recovery at open from yesterday's historic low of 86.59. The easing of the dollar index supported the rupee, providing a breather to import-dependent sectors.
Oil prices slipped in early trade on Tuesday, although they remained near four-month highs. Brent crude traded near $81 per barrel, pausing after the 5-percent jump of the last two days. Indian and Chinese buyers have been seeking alternative suppliers following fresh US sanctions on Russian crude, which disrupted global supply chains.
3. Easing inflation offers relief: India’s retail inflation for December fell to a four-month low of 5.22 percent, below market expectations of 5.3 percent. Both rural and urban inflation moderated, driven by easing food prices and a temporary dip in crude oil. Analysts believe this development could support demand recovery and give policymakers room for accommodative measures.
4. Oversold markets attract buyers: Market experts pointed to oversold conditions in large caps, which spurred buying interest. “The sharp drop in benchmark indexes on Monday has prompted the bulls to regroup. While this was anticipated, there is little else to suggest that this is anything more than a dead cat bounce,” said Anand James, Chief Market Strategist at Geojit Financial Services.
Surendra Goyal, Head of India Research at Citi said in a TV interaction that large-cap valuations have returned to five-year averages, presenting a better opportunity compared to mid- and small-cap stocks.
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5. Adani stocks lead gains: Adani group stocks continued to rally, with Adani Enterprises and Adani Ports rising 7 percent and 5 percent, respectively, emerging as the top contributors to Nifty gains. Other group stocks also surged, with Adani Power jumping 19 percent; Adani Green 13 percent; and Adani Energy Solutions Ltd 12 percent.
Market outlook: Volatility to persist
Despite Tuesday’s gains, analysts caution that the broader market trend remains uncertain. “Some pain could continue in mid- and small-cap segments, although the Nifty and large caps may see near-term stability,” said Aishvarya Dadheech, CIO of Fident Asset Management.
The upcoming US PPI data, corporate earnings, and the Union Budget will be key triggers for market sentiment in the short term. Traders are advised to remain cautious and focus on large-cap opportunities while managing risk in high-beta stocks.
The Nifty faces resistance at 23,260, with downside support seen at 22,900–22,800. Analysts recommend a “sell-on-rise” approach, given the overall weakness in market trends.
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