Sensex jumps 350 points, Nifty 50 reclaims 25,900; what is driving the Indian stock market higher? Explained

The Indian stock market benchmarks- the Sensex and the Nifty 50- clocked decent gains in the morning trade on Wednesday, December 10, after suffering losses for two consecutive sessions.

The Sensex rose by over 350 points to an intraday high of 85,020.34, while the Nifty 50 rose to the day's high of 25,947.65 on Wednesday morning. The mid and small-cap segments also witnessed healthy buying; the BSE Midcap index rose by almost half a per cent while the Smallcap index rose by nearly 1% during the session.

On Tuesday, falling for the second consecutive session, the Sensex closed 436 points, or 0.51%, down at 84,666.28, while the Nifty 50 ended the day with a loss of 121 points, or 0.47%, at 25,839.65. The Sensex had crashed 1,046 points, or 1.22%, while the Nifty 50 had lost nearly 1.32% in just two sessions.

Why is the Indian stock market rising?

Experts highlight the following five factors behind the rise in the Indian stock market today:

1. Short covering

Experts highlight that the market is witnessing some short covering after two days of significant losses. Heavyweights across segments, including Reliance Industries, Kotak Mahindra Bank, and ITC, are witnessing decent buying, which is keeping the benchmarks in the green zone.

2. India-US trade deal hopes

India and the US will begin their trade talks today (Wednesday) amid renewed hopes that both countries will finalise a deal this month.

According to media reports, US Trade Representative Jamieson Greer told lawmakers that India has made the best offer to date in ongoing discussions.

Persistent uncertainty over a potential India-US trade deal timeline has been the primary factor behind the significant foreign capital outflow from Indian financial markets, the rupee's weakness, and volatility in the Indian stock market this year.

Experts say an indication of a deal before the holiday season begins in the US will be a significant boost to market sentiment.

3. Healthy macro triggers "buying on dips"

Experts highlight that the healthy fundamentals are making investors buy the dips. India's favourable growth-inflation dynamics, hopes of earnings recovery, and valuations of large caps returning to normal levels project a bright medium-term outlook for the Indian stock market.

"Fundamentals are turning in favour of India. Higher growth and corporate earnings are achievable in the quarters ahead. The fiscal and monetary stimulus provided this year has begun to produce results," noted VK Vijayakumar, Chief Investment Strategist, Geojit Investments.

"The excessively low inflation rate, which impacted nominal GDP growth, will also start rising in the coming quarters. This is significant since corporate earnings growth will be influenced more by nominal GDP growth rather than by real GDP growth," Vijayakumar said.

"The fact that valuations in the large-cap segment have become fair is another positive. These positive factors will soon start influencing the market. Investors have to keep faith and wait patiently for the fundamentals to play out," said Vijayakumar.

4. US Fed rate cut hopes

Market participants hope that the US Fed will announce a 25-basis-point rate cut later today, which could support the Indian rupee and influence stock market sentiment.

According to CME's FedWatch Tool, traders see an 88.6% chance of a 25-basis-point rate cut on Wednesday.

5. Technical factor

Experts highlight that the Nifty 50 has a key support in the range of 25,650–25,700 and resistance in the 25,950–26,000 zone. As the index dropped below 25,850 in the previous session, it bounced back to reclaim 25,900.

"Nifty continues to face stiff resistance at 25,950–26,000, a supply zone that has repeatedly capped upside attempts. Immediate support is placed at 25,650–25,700. A definitive breakout above the resistance band will be essential to revive bullish momentum, while a sustained move below support could prolong the current consolidation phase," said Amruta Shinde, Technical & Derivative Analyst at Choice Equity Broking Private Limited.

According to ICICI Direct, 26,000-26,100 may continue to act as a strong hurdle. On the option data front, higher OI concentration is seen near the call strike of the 26,000 level, making it a strong hurdle. While on the Put side, OI concentration has shifted to lower strikes, and the Put base at 25,500 is likely to remain crucial support.

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Disclaimer: This story is for educational purposes only. The views and recommendations expressed are those of individual analysts or broking firms, not Mint. We advise investors to consult with certified experts before making any investment decisions, as market conditions can change rapidly and circumstances may vary.