Sensex, Nifty pullback from 7-month lows; IT, banking stocks lead recovery

Nifty Bank and Nifty IT led the gains in the Nifty 50, while healthcare and FMCG sectors posted marginal losses.

India's benchmark indices were higher on January 28, attempting a modest rebound after skidding to seven-month lows in the previous session. Nifty Bank and Nifty IT led the gains in the Nifty 50, while healthcare and FMCG sectors posted marginal losses.

Financials gained after the Reserve Bank of India (RBI) unveiled measures to boost liquidity in the banking system. On January 27, the RBI announced a Rs 60,000 crore OMO purchase in three tranches and a Variable Rate Repo (VRR) auction scheduled for next month. These liquidity-injection steps, including bond purchases and dollar/rupee swaps, are seen by analysts and traders as potential precursors to a rate cut in the coming month.

At 09.18 AM, the Sensex was up 342 points or 0.5 percent at 75,708, and the Nifty was up 94 points or 0.4 percent at 22,923. About 1,490 shares advanced, 940 shares declined, and 120 shares were unchanged.

"Now, FIIs have been sellers in the cash segment, but in the index futures segment, they have started covering some of the short positions," said Ruchit Jain Assistant Vice President, Motilal Oswal Financial Services. "Their long-term ratio has improved marginally from about 15 percent to around 20 percent now. The data is indicating that we might see some sort of pullback move in the market since, technically, 22,800 is a good support for the market."

Foreign Institutional Investors (FIIs) offloaded Indian equities worth over Rs 74,000 crore in January, while Domestic Institutional Investors (DIIs) stepped in, buying stocks worth Rs 73,500 crore.

Jain acknowledged the uncertainty surrounding the continuation of FII outflows but highlighted the significance of Q3 corporate earnings and the Union Budget in shaping sentiment. For now, he expects Nifty to find support at 22,750–22,800, with resistance at 23,350–23,400.

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In the broader market, the BSE Midcap index remained flat, while the BSE Smallcap index fell 0.8 percent, underperforming the benchmark indices.

Shares of semiconductor manufacturing company Kaynes Technology fell as much as 16 percent after the management trimmed its FY25 revenue guidance to Rs 2,800 crore from Rs 3,000 crore earlier.

Shares of Netweb Technologies fell 8 percent, impacted by the decline in Nvidia's stock overnight. The drop followed the emergence of DeepSeek, a Chinese AI start-up offering a free alternative to ChatGPT.

Shriram Finance, Axis Bank, Bajaj Finance, IndusInd Bank, and Tata Steel emerged as the top gainers on the Nifty 50 index, while Sun Pharma, M&M, Wipro, Dr. Reddy's, and Coal India led the list of losers.

This six-day trading week is bookended by two crucial events—the U.S. Federal Reserve's rate decision on January 29 and India’s Union Budget on February 1. Analysts suggest that while the Fed is unlikely to cut rates significantly, the market's focus has already shifted to the domestic fiscal roadmap.

"The Fed meeting outcome appears priced in, and investors are now awaiting the Budget announcements," Jain stated. U.S. policymakers are expected to maintain current interest rates, but Trump's recent push for lower borrowing costs has introduced fresh uncertainty into the Fed’s outlook.

Meanwhile, the European Central Bank is poised to cut its key deposit rate by 25 basis points on January 30, amid growing concerns over U.S. tariff threats clouding Europe's economic prospects.

Also Read | FIIs sell shares worth nearly $8 billion in January; third-largest monthly outflow ever

The global tech sector faced a jolt as Chinese AI startup DeepSeek introduced its cost-efficient AI assistant, disrupting expectations of a steady demand uptick across the tech supply chain. On January 27, DeepSeek surpassed ChatGPT as the top-rated free app on Apple's U.S. App Store, raising eyebrows with its use of cheaper chips and smaller data sets.

Shares of Nvidia, the U.S. chipmaking giant, plummeted 17 percent, erasing $593 billion in market value in a single session. The Nasdaq recorded its steepest one-day drop since December 18, driven by concerns that DeepSeek’s innovation could upend the AI growth trajectory.

Asian markets offered a mixed picture today. Hong Kong's Hang Seng Index edged up 0.3 percent, shrugging off Wall Street’s sharp sell-off. However, Japan's Nikkei 225 dropped 0.7 percent, as chip-related stocks extended losses amid fears of Chinese AI competition weighing on tech companies linked to U.S. supply chains.

Meanwhile, several markets across Asia-Pacific, including Australia, Taiwan, South Korea, and China, remain closed for the Lunar New Year holiday.

The Sensex and Nifty closed at their weakest levels since early June 2024 on January 27, erasing gains accumulated since the national election results. With a 3.5 percent drop in January so far, both indices are on track for a rare fourth consecutive monthly loss—the longest losing streak in over two decades. Market experts attribute the decline to softening corporate earnings, apprehension over U.S. President Donald Trump's trade policies, and sustained foreign outflows totalling $7.75 billion this month.

"Having achieved 22,800, an attempt at consolidation was visible yesterday (January 27). We are looking for a continuation of such an attempt today, or a swing higher. Such upswings could even pave the way for a push towards 23,128 or 23,211," said Anand James, Chief Market Strategist at Geojit Financial Services.

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