Why Sensex, Nifty are rising today; will this stock market recovery sustain?

Sensex and Nifty rose for the second straight session on Wednesday, as dollar edged lower and 10-year US bond yields declined ahead of inflation data in the US.  Crude oil prices fell, but stayed above $80 a barrel mark. Rupee appreciated marginally against the greenback, raising hopes that FPI selling may halt soon.

The gains on key indices were led by Reliance Industries Ltd, Maruti Suzuki India Ltd, Larsen & Toubro and Zomato Ltd. The BSE Sensex rose 248.07 points or 0.32 per cent to 76,747.70. Nifty stood at 23,231.40, up 55.35 points or 0.24 per cent. Midcap and smallcap indices edged 0.3 per cent higher.

"It appears that the dollar and US bond yields have peaked for now. There are reports that Trump will begin with low tariff hikes putting pressure on major exporters to the US, even while leaving room for negotiations. If this scenario plays out, further rise in dollar and US bond yields will be arrested. Till then, the FII selling will continue, preempting any rally in the market," V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services.

Vijayakumar said the market will witness lots of stock-specific action in response to the Q3 results, noting that the market is rewarding performers delivering better-than-expected results and punishing those delivering worse-than-expected results.

Reliance Industries added 1.18 per cent to Rs 1,253.20. The index heavyweight will announce its quarterly results on January 18. Elara sees RIL's Q3 net profit rising 5.6 per cent YoY to Rs 18,239 crore on 8.7 per cent rise in sales at Rs 2,44,587 crore. MOFSL sees Q3 profit rising to 2.9 per cent YoY to Rs 17,700 crore on 2.5 per cent rise in sales at Rs 2,30,800 crore.

Maruti Suzuki advanced 2.83 per cent to Rs 12,075. NTPC, Zomato, IndusInd Bank and Power Grid gained 1.69 per cent, 1.67 per cent, 1.63 per cent and 1.47 per cent, respectively.

Bajaj Finance and Bajaj Finserv fell up to 2 per cent. Axis Bank, Nestle India, Mahindra and Mahindra and Sun Pharma declined up to 1.2 per cent.

Adani stocks gain

Adani Ports added 1.37 per cent to Rs 1,132. "APSEZ is poised to surpass India's maritime growth, leveraging its strategically balanced port network across the western & eastern coasts, complemented by its comprehensive end-to-end logistics. We recommend BUY with a DCF based price target of Rs 1,674," Ventura Securities said.

Adani Wilmar Ltd fell 0.64 per cent to Rs 265.25. Following the OFS in Adani Wilmar, FTSE will raise the float, resulting in a weight increase. This change is expected to lead to passive inflows of approximately $24 million, translating to about 7.8 million shares or 1.7 days of trading impact. "Typically, such events are more volume-driven (liquidity) rather than solely price-focused. The rejig is scheduled for today," Nuvama said.

Budget expectations 

Shripal Shah, MD & CEO, Kotak Securities said the upcoming budget holds promise for retail investors, particularly with expectations of tax relief in the lower income slabs.

If the government reduces tax rates for smaller taxpayers, it could lead to higher disposable income in the hands of the common man. This increase in purchasing power has the potential to boost consumption, indirectly benefiting the stock market by spurring growth in consumer-driven sectors, Shah said.

 
"From a capital market perspective, we hope for measures to improve sentiment in the wake of current macroeconomic challenges. A reduction or moderation in capital gains tax or Securities Transaction Tax (STT) could significantly improve market dynamics. Such steps would not only support domestic retail participation but also make Indian equities more attractive to foreign investors. This could help counteract FII outflows, stabilise the rupee, and enhance the overall investment climate,” Shah said.

Broader market movement

In the broader market, 1974 stocks advanced while 1,528 declined so far. ICICI Securities in a recent strategy noted said stocks which derive maximum value from extrapolation of long-term earnings instead of short-term earnings are expected to be impacted the most as this environment of relatively higher rates is likely to truncate the ‘long term growth value’ of stocks.

"The aforementioned behaviour is akin to bond valuations wherein long maturity bonds have higher sensitivity to interest rates. However, stocks which have upgrades to FY25-26E earnings outlook could offset this effect to some extent while expensive stocks with near-term earnings downgrades are trapped," it said.

In comparison with 2018, corporate India’s balance sheets are in a better shape. But valuations, are way higher than 2018, with softer margin improvement levers, analysts said.

Nuvama Institutional Equities said the Fed pivot could be delayed this time, given sticky inflation, warranting caution. It maintained its 'Underperform' rating on cyclicals and midcaps despite the recent fall.