Sensex jumps 1,100 pts, Nifty tops 24,300: Why market is rising, what to expect in near term

Indian stock market saw a strong trading momentum in Wednesday's trade, in line with a rise in Asian markets, as investors bet on ease in West Asia crisis. The market was closely tracking the news around UAE exiting OPEC, the political developments at home, as the state elections end today.

Also, the Federal Reserve's two-day policy meeting will kick off today and the market is likely to closely review Chairman Jerome Powell's commentary for signals on the inflation and growth outlook.

The BSE Sensex surged nearly 1,100 points to hit a high of 77,974.20. By 1 pm, it was later quoting at 77,932.84, still up 1,045.93 points or 1.36 per cent. Gains were led by stocks such as Reliance Industries, Bharti Airtel Ltd, Larsen & Toubro Ltd and ITC Ltd.  The exit polls this evening might give indications of possible outcomes and would be tracked closely.

Asian markets rally

Earlier today, most Asian markets including Japan, Hong Kong, Korea, Taiwan and China gained up to 2 per cent. The gains were seen as Iran reportedly conveyed via Pakistan its willingness to halt hostilities if the US lifts the naval blockade, revises Hormuz transit terms, and offers security assurances. Trump, as per reports, remained dissatisfied, citing nuclear concerns.

The US President in a post on Truth Social said Iran has informed the US that it is in a state of collapse. He said Iran wanted the US to open the Hormuz Strait, as soon as possible, as it tries to figure out its leadership situation. 

Market valuations look better now

Kotak Institutional Equities said valuations of the Indian market, sectors and stocks look better after the correction since the start of the West Asia war, but they are not good enough to elicit deeper investment interest. 

This is because India’s earnings outlook and valuations pale in comparison to its global peers. It, however, believes India’s earnings may hold out better than the economy in the event of a more prolonged conflict, given the earnings composition of the market. 

"The ceasefire between Iran and the US provides hopes for a resolution to the West Asia war over the next few weeks, but limited progress on peace talks raises concerns about the deeper impact of a prolonged conflict with continued blockade of the Strait of Hormuz and disruptions to supply of oil, gas and other critical materials from the Middle East," Kotak Institutional Equities said.

The brokearge said half of Nifty's net profit comes from sectors such as electric utilities, IT services, metals & mining, pharmaceuticals, oil, gas & consumable fuels and telecommunications. These sectors have low connection to domestic economic conditions. One-third of net profits comes from lenders where the impact of a short conflict will be marginal and the impact of a longer conflict manageable with a modest increase in credit costs, Kotak said.

Market outlook for near term
ICICI direct said Nifty may consolidate within the broader range of 24,500-23,400 while sailing through geopolitical volatility and reacts to the ongoing corporate earnings season.. A decisive close above the 24,500 would be essential to trigger the next leg of the upward rally, it said,

"Investors should utilise dips to accumulate high-quality stocks with strong Q4 earnings as strong support is firmly placed at 23,400, which aligns with the 61.8 per cent Fibonacci retracement of the recent rally (22,182–24,601) and the significant gap area of 23,555–23,154," it said.

Stocks trading above 200-SMA
The current up move is backed by the improvement in the market breadth, as the current reading of percentage of stocks trading above 50- and 200-days SMA has jumped to 67 per cent and 40 per cent compared to last month reading of 15 per cent each, signalling broadening of rally that bodes well for durability of ongoing up move, ICICIdirect said.