Sensex, Nifty 50 snap 3-day losing streak; investors earn ₹5 lakh crore— What drove the Indian stock market higher?

Positive global cues and US President Donald Trump's softer tone on Greenland charged up the stock market bulls on Thursday, January 22, resulting in a broad-based buying in the Indian equity market.

Snapping their three-session losing streak, the Sensex rose 398 points, or 0.49%, to end at 82,307.37, while the Nifty 50 settled at 25,289.90, rising 132 points, or 0.53%. The BSE Midcap and Smallcap indices rose 1.28% and 1.13%, respectively

A sharp rally in the equities market made investors richer by ₹5 lakh crore in a session as the overall market capitalisation of BSE-listed firms rose to nearly ₹459 lakh crore from ₹454 lakh crore in the previous session.

What drove the Indian stock market higher?

Let's take a look at five key factors behind the rise in the Indian stock market:

1. US-EU trade war fears fade

US President Donald Trump's change in stance on Greenland triggered a global relief rally across markets. Trump on Wednesday backed away from his threat to impose tariffs on European countries, saying he had reached the outlines of an agreement with NATO regarding the island’s future.

He stated that he had met NATO Secretary General Mark Rutte and chalked out a 'framework for a future deal'.

Trump's changed tone has calmed the market, which had been in doldrums amid fears of a trade war between the US and the European Union and its economic ramifications for the global economy.

"Trump's message that the US would 'refrain from imposing tariffs on Europe' takes away the threat of a US-Europe trade war, which was dragging the markets down," said VK Vijayakumar, Chief Investment Strategist, Geojit Investments.

2. An India-US trade deal hope revives

Apart from easing geopolitical and geoeconomic concerns, rising hopes of a potential India-US trade deal are also boosting market sentiment.

According to media reports, Trump on Wednesday expressed respect for his "friend," Prime Minister Narendra Modi, and said that India and the US were on track to reach a good trade deal.

“I have great respect for your Prime Minister. He’s a fantastic man and a friend of mine, and we are going to have a good deal,” Trump said.

3. Short covering after the recent selloff

Positive global sentiment seems to have triggered a short covering in the domestic market, which had been under strong pressure over the last three consecutive sessions.

From Monday to Wednesday this week, the Sensex crashed 1,661 points, or 2%, while the Nifty 50, too, plunged 2%.

With global uncertainties easing, market participants are rushing to cover shorts as India's healthy macro set-up keeps the medium- to long-term outlook for the market positive.

"The consequent relief rally in the market today can be significant since there are about two lakh short contracts in the market and the market construct is right for short-covering," Vijayakumar said.

4. In-line Q3 numbers

Experts highlight that the December quarter earnings of Indian corporates have been on expected lines so far, which is underpinning market sentiment.

Apart from the one-time impact of the new labour codes, the overall numbers have been healthy, largely free of major negative surprises.

"The Q3 profitability of companies has been affected by higher provisions for the new labour code commitments. But the market will shrug it off since this is a one-time commitment. Among the results announced yesterday, Eternal stands out with better-than-expected revenue and profit growth from the quick commerce business," said Vijayakumar.

"We expect an 8-10% earnings growth for Q3. While banks, IT and consumption may deliver single-digit earnings growth, auto, NBFCs and metals should deliver robust double-digit earnings growth, thereby leading to a weighted average of around 8-10% for the quarter. The earnings recovery should get further strengthened in the next few quarters," Varun Goel, Senior Fund Manager at Mirae Asset Investment Managers (India), told Mint.

5. Technical factor

According to Santosh Meena, the head of research at Swastika Investmart, the 25,000 mark has emerged as the critical immediate support level for the Nifty, serving as a vital psychological floor that coincides with the 200-Day Moving Average (200-DMA).

"This confluence of technical indicators suggests that 25,000 is a 'make-or-break' zone for the index. If the Nifty manages to respect and hold this level, we can expect a technical recovery or relief rally as the market stabilises and positions itself in anticipation of favourable Budget announcements," said Meena.

However, Meena added that investors should remain cautious, as a decisive breach below this 200-DMA support could signal a deeper correction and invite further selling pressure in the near term.

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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.