Sensex, Nifty extend winning run to fourth session; key reasons behind market rally

Indian equity indices extended their gains for a fourth consecutive session on Tuesday, with domestic benchmarks rising more than 1 per cent. The 30-share BSE Sensex pack advanced 948.09 points or 1.25 per cent to 76,640.87 level at the last check, while the NSE Nifty index gained 251.85 points or 1.07 per cent to close at 23,692.65.

On the sectoral front, banks, financials, FMCG, automobile, cement and realty stocks led the gains, while IT, metals and pharma shares were seen trading lower. The broader market also participated in the rally, with midcap and smallcap indices rising 0.66 per cent and 0.42 per cent, respectively.

Strong Q2 earnings

Robust corporate earnings have emerged as one of the key factors supporting market sentiment. In a recent report, Nomura said the Q2 FY27 earnings season was off to a good start following a strong Q1 performance.

Of the 134 companies in its BSE 200-plus universe that have reported results so far, normalised profit after tax (PAT) grew 34 per cent year-on-year (YoY), beating consensus estimates by 18 per cent, the global brokerage said.

Improving foreign investor sentiment

Nomura also expects relative sentiment towards Indian equities among foreign investors to improve, potentially supporting portfolio flows in the near term.

The brokerage attributed this outlook to relatively low starting expectations, with valuations across most sectors below their post-pandemic averages. It also noted that the correction in AI-related stocks has helped Indian equities outperform AI-heavy markets such as South Korea, Taiwan and the Nasdaq.

LTCG cut hopes, crude correction

Nomura noted that other supportive factors include the possibility of a long-term capital gains (LTCG) tax cut for foreign institutional investors (FIIs), declining global bond yields and expectations that the rupee will remain supported by the Reserve Bank of India (RBI) intervention.

However, the brokerage mentioned that elevated crude oil prices remain a concern, although oil prices have corrected from their recent peak.

VK Vijayakumar, Chief Investment Strategist at Geojit Investments, said the current market conditions were favourable for the continuation of the ongoing rally.

A decline in Brent crude from recent elevated levels, further weakening of the AI trade, continuing flow of good Q2 results and FIIs turning buyers have potential to accelerate the ongoing rally, he also said.

Vijayakumar, however, cautioned against interpreting the weakness in AI-related stocks as a broader collapse in the segment.

"While the AI trade has slightly weakened, it is important to understand that this is only a correction, not yet a crash. Results of many AI companies continue to be good. So watch out for the trends in this segment," he said.

Vijayakumar added that the results of the US mid-term elections, due tomorrow, and their potential impact on geopolitical dynamics would be closely watched by markets in the coming days.