Bulls Return: Sensex, Nifty Gain As Crude, Dollar Boost Markets; Will This Continue? – News18
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The Indian stock markets are gradually finding their footing, buoyed by a double dose of macroeconomic relief. Will this rally continue?
Are bulls here to stay on D-street? (AI-generated image)
The Indian stock markets are gradually finding their footing, buoyed by a double dose of macroeconomic relief: a weakening US dollar and a sharp drop in crude oil prices. Over the past few days, a relief rally has taken hold, with bullish sentiment gaining traction as the US dollar index retreats and oil prices dip below $70 a barrel.
The Sensex has risen by approximately 1,000 points over the last two days, marking a strong recovery. However, the broader market, which had recently entered bear territory, is seeing an even sharper rally. The BSE Smallcap index has surged by 5.6% over the past three days, outperforming the broader market.
Weakening US Dollar Index
The US dollar index has recently slipped to a four-month low of 104.3, which is considered beneficial for emerging markets like India. According to V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services, “If this trend continues, foreign institutional investor (FII) selling may subside, paving the way for further market gains.”
At the same time, the Indian rupee has strengthened, further boosting optimism that FII selling may soon reverse.
Plummeting Crude Oil Prices
Crude oil prices have fallen to a six-month low, providing additional support for market sentiment. Oil marketing companies (OMCs) have extended their gains for the fourth consecutive session. Brent crude has dropped below $70 per barrel after the OPEC+ alliance decided to increase output from April, which is expected to benefit Indian refiners by improving marketing margins on retail fuel. “The escalation of the trade war has raised concerns about global demand, adding pressure on oil prices,” said Rahul Kalantri, VP Commodities at Mehta Equities Ltd.
Improving Capital Flows Into India
According to Elara Securities, the sell-off across emerging markets (EMs) that began in October 2024, post-Trump’s victory, was a result of funds moving back to the US. However, this trend has slowed down across large EMs in the past few weeks. Although India’s capital flows remain weak, the pressure on the market may reduce in the coming weeks.
The probability of a 75-basis-point rate cut by the US Federal Reserve in 2025 has surged from 6% to 32% over the last three weeks, pushing the US 10-year bond yield down by 60 basis points to 4.2%. This shift in rate expectations has diminished the momentum behind the dollar’s rally, which could reignite capital flows into India.
Foreign Investors Reducing Bullish Dollar Bets
Foreign investors have already reduced their bullish dollar positions, cutting exposure to $16 billion since Trump’s inauguration. Mark Dowding, chief investment officer at RBC’s BlueBay fixed-income team, mentioned, “We had been long the dollar against the euro and closed that position over a week ago. It had lost impetus.”
China’s Stimulus Measures Boost Market Sentiment
Another factor contributing to the rally is the anticipation of further stimulus measures from Chinese authorities to boost consumption and counteract economic pressures. This has led to a surge in base metal prices, which has, in turn, supported a rally in metal stocks in India. The Nifty Metal index rose nearly 2% in trade. Daniel Hynes, senior commodity strategist at ANZ Bank, noted, “Base metals rallied in Asian trade on the prospect of further China stimulus measures.”
Will The Rally Sustain?
Manish Goel, Founder and MD of Equentis Wealth Advisory Services, believes that this is just the beginning of a stronger phase for Indian markets. “Markets are entering a phase of renewed traction, driven by improving GDP growth, earnings recovery, and better liquidity conditions,” he said. Goel expects earnings to grow by 15% in FY26 and 14% in FY27, with the Nifty trading at its most reasonable valuations in three years at 19.6x P/E. He foresees the index reclaiming the 25,000–26,000 range in the next two to three quarters.
Anand James, Chief Market Strategist at Geojit Financial Services, pointed out that the Nifty’s close above 22,400 confirmed a morning star candlestick pattern, signaling a potential trend reversal. “The next resistance is seen at 22,513, but we expect enough momentum to push towards 23,000. However, volatility must remain contained above 22,270 for the uptrend to sustain. A break below 22,190 could challenge the upside view,” he added.
Despite the positive indicators, some caution remains. Pankaj Pandey, Head of Research at ICICIdirect.com, warned of persistent global uncertainty. He noted, “While domestic macros are definitely supporting, global uncertainty still persists. Historically, since 2006, we have seen that the average correction in midcap has been about 27%, lasting for about seven months. So, I will not rule out some bit of volatility,” advising a measured cash position at current levels.
For now, the Indian stock markets are embracing the tailwinds. With the US dollar losing momentum, crude oil prices falling, and expectations of looser US monetary policy rising, the stage appears set for a potential comeback in Indian equities. If these trends continue, the persistent FII outflows from the past months could soon reverse, setting the stage for the next phase of the market rally.
