Markets rebound on softer Fed tone, China stimulus; Sensex, Nifty rise 0.9%

India’s benchmark indices, along with most of the major global markets, on Tuesday recouped almost all the losses made a day earlier following dovish comments from US Federal Reserve officials and the prospect of more economic stimulus by China. The gains came even as Israeli forces intensified their counterattack against Hamas militants in the Gaza Strip.

The Sensex gained 567 points, or 0.9 per cent, to end the session at 66,079, while the Nifty50 index settled at 19,690 after rising 178 points, or 0.9 per cent. The broader markets jumped even higher, with the Nifty Midcap100 and Nifty Smallcap100 surging 1.4 per cent and 1.2 per cent, respectively.

Foreign portfolio investors sold domestic stocks worth about Rs 1,000 crore on Tuesday, while domestic institutions were net buyers to the tune of Rs 1,960 crore.

The 10-year US Treasury yield slipped below 4.7 per cent after comments from two Federal Reserve officials revived hopes of the peaking of interest rates.

Fed Vice Chair Philip Jefferson on Monday said he would remain cognizant of tightening monetary conditions through higher bond yields while assessing the future path of policy. Similarly, Federal Reserve Bank of Dallas President Lorie Logan said the recent rise in bond yields might mean less need for the US central bank to raise rates in future.

Investor sentiment was further boosted by news reports that China was preparing to unleash a new round of measures to support its economy. According to these reports, the Chinese government will issue a sovereign debt of $137 billion for spending on infrastructure projects to lift its economic prospects.

Despite the bounceback in equity markets on Tuesday, the escalating conflict between Israel and Hamas continues to worry investors, who fear this may snowball into a wider regional war, resulting in higher oil prices. Brent crude oil prices declined marginally on Tuesday to trade below $88 a barrel, after jumping over 4 per cent a day earlier.

The International Monetary Fund (IMF) raising India’s growth forecasts also buoyed sentiment. The IMF projected India’s GDP to grow 6.3 per cent in FY24, 20 basis points higher than previously estimated, according to the World Economic Outlook published on Tuesday.

“The domestic market's primary focus is currently on the approaching result season, with optimistic expectations on earnings,” said Vinod Nair, head of research at Geojit Financial Services.

Siddhartha Khemka, head of retail research at Motilal Oswal Financial Services, said he expected a robust 21 per cent earnings growth for Nifty50 firms in the second quarter, which would be driven by finance and auto stocks.

“So a lot of stock-specific action would be seen over the next 45 days as earnings get declared. On the index front, the Nifty might continue with its consolidation with bouts of volatility as it would track the geopolitical development, US bond yields, and oil prices amidst result announcements,” he said.

The market breadth was strong, with 2,503 stocks advancing and 1,160 declining. Barring three, all Sensex stocks gained. ICICI Bank rose 1.4 per cent and contributed the most to the Sensex gains. State-owned Coal India gained 5.1 per cent, the most among the Nifty components, followed by Adani Ports, which gained 3.5 per cent.