The Indian stock market has made a dramatic recovery, with both the Sensex and Nifty50 soaring by 6% in just two trading sessions. This surge came amid a sharp drop in market volatility, a welcomed shift following a period of heightened uncertainty. By noon, the Sensex was up by 1,600 points, or 2%, while the Nifty50 gained nearly 500 points, also reflecting a 2% increase.
This sharp rally was broad-based, with significant gains in both the small-cap and mid-cap indices, signaling that investor sentiment is turning optimistic. The sectors leading the charge included auto, banking, financial services, real estate, and metals, all of which contributed heavily to the rally. Among the large-cap stocks, companies like Reliance Industries, HDFC Bank, Bharti Airtel, ICICI Bank, and SBI saw significant gains, underlining the broad-based strength in the market. In fact, only four stocks within the Nifty50 index were trading in the red during this trading session, signaling strong bullish momentum.
A key factor driving this rebound was a notable drop in volatility. This shift came after US President Donald Trump hinted at more tariff pauses, providing some relief to global markets, including India. However, experts caution that while the rally is encouraging, it is essential to approach the current market scenario with a level of caution due to ongoing global uncertainties, particularly surrounding US trade policies.
Dr. VK Vijayakumar, the Chief Investment Strategist at Geojit Financial Services, highlighted that while the Indian market is showing signs of recovery, it is still lagging behind global markets. For instance, the S&P 500 has surged by 9% since its lows in April, whereas the Nifty50 has only gained 3%. This suggests that there may be some catch-up to do, and short-covering could help keep the momentum going in the near term. However, he warned that the uncertainty stemming from President Trump's aggressive tariff stance is far from over. The potential imposition of sectoral tariffs could put pressure on specific sectors, including Indian pharmaceuticals, which could face renewed challenges.
Given this backdrop, Vijayakumar recommended that investors focus on sectors driven by strong domestic consumption, as these industries tend to be more insulated from global shocks and offer better earnings visibility. Key sectors to watch include financials, telecom, aviation, hospitality, and healthcare. These areas are expected to perform better even if global volatility continues to affect broader markets.
Anand James, Chief Market Strategist at Geojit, echoed the need for caution in his analysis. While he acknowledged that some of the worst-case trade war fears have been priced into the market, he emphasized that volatility remains high. Despite a sharp fall in the India VIX (volatility index), it is still more than 46% higher than the levels seen before last week's sell-off. This indicates that the risk appetite in the market remains fragile. James believes that while there is room for the Nifty50 to move higher, traders should be cautious about overcommitting. He suggested that unless volatility significantly decreases, pushing the market beyond the 23,000 mark could be premature. If the market does break above this level, it could potentially target 23,400 or even 24,000, but such a move would require strong catalysts and more stable global conditions.
While the rally has legs, experts agree that it is running on tricky terrain. For investors, the key takeaway is to be selective rather than aggressive. Investors should focus on high-quality stocks and domestically driven sectors that are less likely to be affected by global volatility. High-beta stocks, which tend to be more volatile and sensitive to global market movements, should be avoided for now. While the rally may not be over, the risks remain, and investors should remain vigilant, adapting their strategies to navigate the uncertainties ahead.
