The benchmark National Stock Exchange Nifty50 rose about half a per cent, aided by gains in index heavyweights Reliance Industries (RIL) and HDFC Bank. Positive global cues, coupled with continued optimism that interest rates have peaked, also whetted risk appetite.
Snapping its two-day losing streak, the Nifty rose by 89 points, or 0.45 per cent, to end at 19,783, marking its highest close since October 17.
The S&P BSE Sensex rose by 276 points, or 0.42 per cent, finishing at 65,931, with metal stocks leading the gains.
RIL, which rose by 1.2 per cent, contributed the most to Sensex gains, followed by HDFC Bank, which rose by 0.8 per cent, and ICICI Bank, which rose by 0.5 per cent.
Analysts termed the rise in finance stocks as bargain hunting after a slide.
The slide in 10-year US bond yields has also increased the appetite for equities. The 10-year US bond yield declined on Tuesday and was trading at 4.4 per cent.
Equity markets are rising after a soft inflation reading in the US and UK this month, raising hopes that monetary policymakers in the Western world have concluded a historic rate hike campaign.
Data released a week ago showed US inflation slowed in October. The core consumer price index, excluding food and energy costs, rose by 0.2 per cent from September.
Information technology (IT) stocks, whose fortunes are tied to economic prospects in the US, have been the best performers in the past week.
Since November 13, the Nifty IT Index has rallied by 5 per cent. Following a sharp rebound in the market from October lows, the benchmark indices are less than 2 per cent shy of new record highs.
The Sensex and Nifty had hit record closing highs of 67,839 and 20,192 on September 15.
While domestic valuations are at a premium compared to other global peers, analysts say superior economic and earnings growth will help the Indian markets post double-digit gains over the next year.
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“We expect corporate profits in India to grow by 15 per cent in 2024 and another 14 per cent in 2025, with growth appearing broad-based across sectors. An improving profits-to-gross domestic product ratio and stabilisation in a decade-long earnings downgrade cycle in recent years suggest a turnaround in the earnings cycle,” said a note by Goldman Sachs, which has set a December 2024 target of 21,800 for the Nifty.
Following the latest inflation data and retreat in bond yields, traders are pricing in rate cuts as early as March next year. However, for the sustainability of the ongoing rally, some experts say the fall in inflation has to be more consistent for central bankers to end rate hikes.
“The global sentiment was positive as US treasury yields and the dollar index continue heading lower on the expectation that US interest rates have peaked. On the domestic front, the focus is likely to shift to the primary market as five initial public offerings are lined up for this week. Overall, we expect the market to continue to trade in a broader range with a positive bias,” said Siddhartha Khemka, head of retail research at Motilal Oswal Financial Services.
JSW Steel, which rose by 1.8 per cent, and Tata Steel, which rose by 1.5 per cent, were the best-performing Sensex stocks.
Analysts said the hopes of a global economic recovery have led to renewed buying interest in the sector.
Tata Steel rose after Jefferies retained a ‘buy’ call on the company and suggested a 40 per cent upside.
Going forward, macroeconomic data and statements of monetary policy officials will determine the market trajectory.
“We need participation from the banking majors to overcome the hurdle at 19,850 in Nifty; otherwise, the consolidation phase will continue. Meanwhile, upbeat global cues, especially from the US markets, would continue to aid the positive tone. Traders should align their positions accordingly and stay focused on stock selection," said Ajit Mishra, senior vice-president, technical research at Religare Broking.
The market breadth was favourable, with 1,955 stocks advancing and 1,769 declining.