Sensex, Nifty see dramatic reversal intraday after over 1% fall: 3 key reasons behind rebound

Sensex, Nifty remained volatile in trade on February 12 after five consecutive days of decline, ultimately ending flat amid mixed cues.

Benchmark indices Sensex and Nifty witnessed sharp intraday volatility on Wednesday, reversing most of their early losses after falling over 1 percent amid concerns over stretched valuations and subdued Q3 earnings growth. Despite the recovery, both indices closed marginally in the red.

The BSE Sensex, which had plunged over 900 points intraday, ended at 76,171.08, down 122.52 points or 0.16 percent. The index had earlier slipped below the 76,000 mark, hitting a low of 75,388.39. The Nifty 50 closed at 23,045.25, down 26.55 points or 0.12 percent, after tumbling to an intraday low of 22,798.35, breaching the crucial 23,000-mark. The broader market remained under pressure, extending its losing streak for the sixth consecutive session.

Buying in select heavyweight stocks, including Bajaj Finserv, Tata Steel, Larsen & Toubro, UltraTech Cement, Kotak Mahindra Bank, and Tata Motors, helped the indices pare losses in the latter half of the session.

Three Factors Behind the Sharp Market Rebound

1) Value Buying in Large-Caps: Select heavyweight stocks saw renewed buying interest as investors shifted focus towards large-cap stocks after the recent correction in domestic markets. Analysts noted that large caps are trading at fair valuations compared to mid and smallcap stocks, which remain expensive.

V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services, said, "The current weakness offers an opportunity to move from mid and smallcaps, which are still overvalued, to fairly valued largecaps."

2) Mutual Fund Inflows Remain Strong: Despite concerns over stretched valuations in the broader market, inflows into equity mutual funds remained robust. The Association of Mutual Funds in India (AMFI) data showed that overall equity fund inflows stayed near the Rs 40,000-crore level in January, indicating sustained investor confidence.

Himanshu Srivastava, Associate Director - Manager Research at Morningstar Investment Research India, noted, "Investors took advantage of the market decline in January, as reflected in the addition of around 30.7 lakh new folios."

Investors double down on riskier bets: Inflows into smallcap, midcap funds hit all-time high

3) Technical Support: The Nifty found strong support near its January low of 22,800, triggering a technical rebound. Analysts observed that sustaining above this level could provide near-term relief to the markets.

Ajit Mishra, SVP - Research at Religare Broking Ltd., added, "The broader trend remains negative unless a clear reversal pattern emerges."

Rupak De, Senior Technical Analyst at LKP Securities, said, "Nifty formed a long-legged Doji pattern, indicating high volatility. As long as the index holds above 22,786, a recovery towards 23,500–23,600 remains possible. Immediate resistance is at 23,200, while support is seen at 23,000."

Since February 4, the Sensex has declined by 2,412.73 points or 3.07 percent, while the Nifty has lost 694 points or 2.92 percent. Market participants remain cautious amid concerns over valuations and global market trends, with analysts advising a selective approach towards fundamentally strong stocks.

Disclaimer: The views and investment tips expressed by experts on Moneycontrol are their own and not those of the website or its management. Moneycontrol advises users to check with certified experts before taking any investment decisions.