The equity benchmark indices rebounded about 1 percent on Wednesday after eight straight sessions of losses, tracking firm buying in banking and financial services stocks, auto and pharma sectors.
The Reserve Bank of India’s decision to keep the policy rate unchanged and leaving room for further rate cuts also boosted the sentiment.
Sensex settled 715.70 points or 0.89 percent higher at 80,983.31, while the broader Nifty climbed to 24,836.30, up 225.20 points or 0.92 percent.
Shriram Finance, Tata Motors, Trent, Kotak Mahindra Bank and Sun Pharmaceutical Industries were among major gainers, rising up to 4 percent.
Key drivers of market rebound
1) Buying in bank shares: Heavy buying was witnessed in the Bank Nifty and financial services index after the policy announcement. Analysts said the RBI’s measures on capital market lending and banking operations boosted investor sentiment.
The central bank proposed to expand the scope of capital market lending by banks, provide greater flexibility for account operations of borrowers, and remove the regulatory ceiling on lending against listed securities.
Bank Nifty jumps 700 pts, Fin Nifty up 1.2% on RBI's lending, capital rules proposals
2) Global cues: Firm global cues also aided the rally. South Korea’s Kospi traded higher, while US markets closed in the green on Tuesday.
3) Crude declines: Brent crude futures fell 1.4 percent to USD 67.02 a barrel, easing concerns on the inflation front and supporting equities.
4) Rupee recovers: The rupee gained 5 paise to 88.75 against the US dollar in early trade, adding further momentum to domestic equities.
5) India Vix declines: The volatility index that reflects investor sentiment, declined 7 percent to 10.29. A fall in the fear gauge is typically seen as a sign of reduced market uncertainty, encouraging risk-taking by investors.
6) RBI leaves room for December rate cut: "The current macroeconomic conditions and the outlook have opened up policy space for further supporting growth," RBI Governor Sanjay Malhotra said in a video address. "However, the MPC noted that the impact of the front-loaded monetary policy actions and the recent fiscal measures are still playing out," he said.
The RBI, announcing its fourth bi-monthly monetary policy for the current financial year, left the repo rate steady at 5.5 per cent for the second consecutive meeting. The Monetary Policy Committee, headed by Governor Sanjay Malhotra, maintained a neutral stance.
7) Rise in Auto shares: Automaker Mahindra & Mahindra said on Wednesday that its sales of sports utility vehicles to dealers in September rose 10 percent year-on-year, after a fall in August, helped by GST cuts and festive demand. Bajaj Auto also reported a 9 percent year-on-year growth in total sales, including exports, to 5,10,504 units in September.
Nifty outlook
"Nifty closed near the day’s low, but oscillators remain accommodative for further upswings," said Anand James, Chief Market Strategist at Geojit Financial Services.
He added that upside targets remain at 24,970 and 25,050, while immediate hurdles lie at 24,720 and 24,800. Key support levels are placed at 24,500 and 24,336, he said.
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