Sensex, Nifty extend rally to seven-week high ahead of RBI policy; IT, bank stocks lead

Market breadth was robust, with 2,144 stocks advancing, 1,821 declining, and 118 remaining unchanged. The India VIX rose by 0.5 percent to 14.53.

Indian equity markets continued their upward trajectory for the fifth consecutive session on December 5, with the Sensex and Nifty closing at near two-month highs. The rally was fueled by expectations of liquidity-boosting measures from the Reserve Bank of India (RBI) following a surprise slowdown in economic growth, along with renewed foreign investor interest and gains in US equities.

Benchmark index Sensex surged 809 points, or 1 percent, to 81,765.86, while Nifty climbed 240.95 points, or 1 percent, to 24,708.40. These levels were last seen on October 15. Broader markets also performed strongly, with the BSE MidCap index rising in nine out of the last ten sessions and the SmallCap index recording its tenth straight day of gains. Market breadth was robust, with 2,144 stocks advancing, 1,821 declining, and 118 remaining unchanged. The India VIX rose by 0.5 percent to 14.53.

Technology stocks led the gains, with Infosys and Tata Consultancy Services surging over 3 percent each. Titan was another standout performer, rising 2.8 percent. Other top gainers included Bajaj Finance, M&M, ICICI Bank, and Bharti Airtel, each up 1.9 percent. NTPC was the sole loser among Sensex constituents, falling 0.5 percent. In the Nifty index, 46 out of 50 stocks advanced, while four declined.

Sectorally, Nifty IT emerged as the top performer, rising 2 percent. Gains were also recorded in Nifty Oil & Gas, Auto, and Private Banks, which advanced 0.8 percent each, while Nifty Bank, FMCG, Metal, and Pharma added 0.7 percent each. On the downside, Nifty Realty fell 0.2 percent, and Nifty PSU Bank slipped 0.1 percent.

Prashant Tapse, Analyst at Mehta Equities, noted that market movements are being driven by expectations around the RBI's monetary policy decision and potential liquidity measures in response to weaker-than-expected economic growth. "While some expect a cash reserve ratio (CRR) cut to signal policy loosening, the RBI has remained cautious due to inflation concerns above its 4 percent target. A rate cut is unlikely at this meeting as the central bank may await further macroeconomic data before easing policy," Tapse said. He added that Nifty could face resistance near 24,800, but if sustained, it may soon touch 25,000.

On the global front, US markets strengthened on the back of optimistic remarks from Federal Reserve Chair Jerome Powell, who highlighted the resilience of the US economy. Powell's comments, coupled with a rally in tech stocks, propelled the Dow Jones past 45,000 for the first time.

Investors are also focused on the Federal Reserve's policy meeting on December 17–18, where updated projections, including the Dot Plot, are expected to provide insights into the Fed's future stance. Markets have currently priced in an 80 percent probability of a 25 basis point rate cut.

Domestically, foreign institutional investors (FIIs) returned as net buyers, infusing over Rs13,000 crore into Indian equities on December 2 and 3, and Rs1,797 crore on December 4, as per NSDL and NSE data. FIIs shifted focus to IT, financials, and FMCG sectors in the second half of November after heavy outflows of Rs94,017 crore in October and Rs21,612 crore in early November.

A Moneycontrol survey suggests the RBI is likely to keep policy rates unchanged for the 11th consecutive meeting, citing persistent inflation concerns. However, the central bank may consider a CRR cut to counter slower economic growth in the second quarter of the fiscal year.

Aditya Gaggar, Director of Progressive Shares said it appears that the market has already digested tomorrow's MPC outcome. The positive trend is likely to continue but considering the strong rally of the past 4 days, a minor correction is anticipated; however, the Index is heading towards the psychological barrier of 25,000 whereas the support has shifted higher to 24,550.