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Domestic equities posted their best single-day jump in more than six weeks on Wednesday with global markets and risky assets reacting positively to Donald Trump’s win in the US Presidential elections.
Trump was elected the 47th US President, capping a remarkable comeback four years after he was voted out of the White House.
The Sensex jumped 902 points or 1.13 per cent to settle at 80,378.13.
The NSE Nifty soared 270.75 points or 1.12 per cent to close at 24,484.05.
This was the biggest gain for the indices since September 20.
Information technology companies, which generate significant revenues from the US, gained the most on optimism that Trump’s promised rate cuts will boost tech spending by American corporations.
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Global investors hedged their bets on Trump's stance on industrial policy, tax cuts, and trade tariffs would fuel growth in the US and benefit equites.
Hang Seng and Shanghai Composite indexes declined as investors fretted over the impact of potential trade tensions.
Experts termed the market reaction as knee-jerk, as equities, US Treasury yields and the dollar rallied simultaneously.
They said one has to see how Trump's fiscal policy and tax cuts impact inflation and the rate cuts trajectory by the US Federal Reserve. The 10-year US Treasury yields leaped 16 basis points to 4.447 per cent.
"Global markets were happy as they saw tax cuts coming, and that's good for corporate earnings. One has to wait for the policy on trade tariffs and its impact,” said Andrew Holland, CEO of Avendus Capital Public Markets Alternate Strategies.
UR Bhat, co-founder of Alphaniti Fintech, said India could benefit from the China-plus-one scenario when Trump imposes tariffs on Chinese goods.
"A lot of production could shift to India," he said.
Most of the gains in the Sensex were contributed by Infosys, Tata Consultancy Services and Reliance Industries.
The Nifty IT, a gauge tracking technology stock, rose 4 per cent.
The India VIX index, a gauge for market volatility, declined 8 per cent to 14.9.
Analysts said the US election outcome will be a short-term boost for the battered domestic equities but in the long-term markets will need earnings growth support.
A lacklustre earnings season and sharp outflows from foreign portfolio investor (FPIs) has seen domestic markets drop over 7 per cent from their peak.
FPIs continued to be net sellers of Indian equities, and they sold shares worth Rs 4,446 crore on Wednesday, while domestic institutions were the net buyers to the tune of Rs 4,889 crore.
“The momentum will be there for some time because of benign global markets. Now we go back to fundamentals, which are not good for India. FPI flow is a tricky one. One has to see what China's stimulus is on Friday. A stronger dollar may mean that currencies in emerging markets depreciate, and flows may not come to emerging markets. Earnings are under pressure. But it will start to grapple with these issues over the next few months,” Holland said.
The market gains were broad-based, with 2,999 stocks advancing and 969 declining on the BSE.
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