Sensex, Nifty crashed, then recovered - What's behind the bounce back of stock market

Indian equity benchmarks ended Thursday's volatile and truncated final trading session of the week on a positive note, extending their gains for the second consecutive day.

At the closing bell, the 30-share BSE Sensex rose 185.23 points or 0.25 per cent to settle at 73,319.55 and the NSE Nifty index advanced 33.70 points or 0.15 per cent to close at 22,713.10, recovering from intraday lows.

A key factor behind the rebound was the strengthening of the domestic currency. The rupee witnessed a strong recovery on Thursday after the Reserve Bank of India (RBI) introduced steps aimed at stabilising the falling domestic currency. The currency rebounded to around 93-per-dollar level after recently weakening past the 95 mark, which had raised concerns among market participants.

The RBI has barred Indian banks from offering non-deliverable forward (NDF) contracts to clients offshore, a widely used derivative instrument for trading the rupee outside India. NDFs are cash-settled contracts that allow investors to hedge or speculate on currency movements without physical delivery of the underlying currency. The move is expected to curb excessive speculative pressure on the rupee in offshore markets and improve currency stability.

"Markets witnessed extreme volatility today, eventually ending on a flat-to-marginally positive note after a sharp intraday recovery. Nifty opened gap-down below the 22,400 mark, reacting to weak global cues, and extended losses in early trade, slipping towards the 22,200 zone. However, strong buying interest in the latter half of the session led to a sharp rebound," Ajit Mishra – SVP (Research) at Religare Broking, stated.

"A recovery in the rupee against the US dollar, oversold market conditions, and some short covering ahead of the long weekend supported the rebound," he added.

Despite Thursday's recovery, the Indian currency has depreciated nearly 8 per cent over the past year, making it one of Asia's weakest performers. The decline has largely been attributed to elevated crude oil prices linked to geopolitical tensions involving US-Iran.

On the equity front, gains in heavyweight stocks such as HDFC Bank Ltd, Infosys Ltd, HCL Technologies Ltd, Tata Consultancy Services Ltd (TCS), ICICI Bank Ltd, Bajaj Finance Ltd, Tech Mahindra Ltd, Axis Bank Ltd, Bharti Airtel Ltd and Maruti Suzuki India Ltd helped lift the benchmarks into positive territory.

Sector-wise, buying interest was visible in information technology (IT) and realty stocks, while healthcare, pharma, automobile and energy shares ended in the red. The broader market underperformed the headline indices, with Nifty Midcap 100 declining 0.26 per cent and Nifty Smallcap 100 falling 0.38 per cent.