Market gains for the third day, here are the 4 factors fuelled the rally

The Indian stock market extended its rally for the third day on February 10, cheering the RBI’s decision to keep the key rates steady. The Nifty50 went past 17,600, up 142 points, while the Sensex surged 460 points to 58,926.

Broader markets also gained momentum but fell short of the performance of the benchmarks. The Nifty Midcap 100 and Smallcap 100 indices rose 0.3 percent and 0.5 percent.

Here are four key factors driving the rally:

RBI policy

The Reserve Bank of India’s dovish policy was the key trigger for the rally. The monetary policy committee voted unanimously to keep the policy repo rate unchanged at 4 percent.

Five of the six members agreed to continue with the accommodative stance "as long as necessary to revive and sustain growth on a durable basis and continue to mitigate the impact of COVID-19 on the economy while ensuring that inflation remains within the target going forward." The reverse repo rate also remained unchanged at 3.35 percent.

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The central bank gave priority to growth, while thinking that the elevated inflation would moderate in the coming quarters, an indication that it is not worried about the hawkish Fed, which has hinted at four-five rate hikes in the current year to fight inflation, and large government borrowing plan for FY23.

"The RBI delivered an ultra-dovish policy by maintaining a status quo on the policy rates and the stance. The status quo has triggered a strong rally in sovereign bonds, with benchmarks yields retreating from the recent highs," said Amar Ambani, Senior President and Head–Institutional Equities at YES Securities.

Also read: RBI takes another step towards policy normalisation by restoring liquidity framework

"It clearly conveys that the RBI is quite committed to orderly evolution of yields, notwithstanding the headwinds in the form of inflationary pressure, hawkish Fed and a large Indian government borrowing plan for FY23. Its stance is backed by its expectation of easing of price pressures by end of the fourth quarter of FY22," he added.

Broad-based rally

The gains were not restricted to rate-sensitive stocks but also other sectors. The Nifty bank, financial services, metal, and IT indices gained more than 1 percent each, while Realty index was up 0.9 percent.

The Nifty Bank traded above 39,000, well above its 10 and 20-day moving averages. It has been the key driver for the market in last three sessions.

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Global cues

Global peers also traded higher, aiding the sentiment in India, as investors await US inflation data that could give an indication about rate hikes at the forthcoming Federal Reserve policy meeting. France's CAC, Germany's DAX and Britain's FTSE were trading 0.1-0.3 percent higher.

In Asia, Japan's Nikkei, China's Shanghai Composite, Hong Kong's Hang Seng, Australia's ASX 200 and South Korea's Kospi ended 0.1-0.4 percent higher.

Technical View

Technically, the Nifty50 formed a bullish candle  on the daily charts and traded above the crucial 17,600-mark, the near-term resistance.

If the index decisively sustains above, it could march towards the next hurdle of 17,800, experts said.

"On the technical aspect, a bullish indication has been showcased among various indicators, affirming the inherent strength in the index. On an immediate basis, 17,200-17,300 is likely to provide strong support, while on the higher end, 17,600-17,650 could be seen as the primary hurdle followed by the recent swing high of the 17,800 zones," said Sameet Chavan, Chief Analyst-Technical and Derivatives at Angel One.

He advised traders to keep a close tab on the mentioned levels and continue with a stock-centric approach.

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