The Indian stock market experienced a significant upswing on Thursday, March 20, with the Sensex and Nifty 50 indices reflecting a positive trend similar to that of the US markets. Following the US Federal Reserve’s decision to maintain stable interest rates, expectations of potential future cuts contributed to this bullish sentiment. This marked the fourth consecutive day of gains for these key benchmarks, with the Sensex gaining 3.4% and the Nifty 50 rising 3.5% over this period.

Market Performance Overview

During the trading session, the Sensex surged by over 1,000 points, reclaiming a noteworthy level as the Nifty 50 crossed 23,200. By the end of the day, the Sensex concluded at 76,348, reflecting an increase of 899 points or 1.19%, while the Nifty 50 ended at 23,190.65, up by 283 points or 1.24%.

• Mid and small-cap performance:
  • BSE Midcap index: +0.61%
  • Smallcap index: +0.73%

The total market capitalization for companies listed on the BSE increased significantly, reaching over ₹408 lakh crore, up from ₹405 lakh crore, effectively adding ₹3 lakh crore to investors’ wealth in just one day.

Reasons Behind the Rally

The Indian stock market’s recent surge can be attributed largely to domestic factors rather than just the US Federal Reserve’s decisions. The Nifty 50 has bounced back over 3% in March alone, a positive shift after five months of losses. Here are some pivotal reasons driving this upward momentum:

1. Attractive Valuations

After experiencing a notable correction, the Indian stock market now presents attractive valuation opportunities. Investors are drawn to quality stocks that have become more affordable. According to Pankaj Pandey, head of research at ICICI Securities, "The domestic macroeconomic landscape has been largely positive, and recent price corrections have made valuations more appealing."

2. Positive Macroeconomic Indicators

Recent economic data signals a revival in India’s growth trajectory. The GDP grew by 6.2% in the December quarter of FY25, and retail inflation fell to 3.61% in February. Additionally, the Index of Industrial Production (IIP) rose by 5% in January, suggesting a rebound in economic activity, which has positively influenced market sentiment.

3. Expectations of US Fed Rate Cuts

While the US Federal Reserve opted to keep interest rates steady in its March meeting, it hinted at potential rate cuts in the future. Fed Chair Jerome Powell conveyed a less hawkish stance, contributing to market optimism. As noted by Madhavi Arora, Lead Economist at Emkay Global Financial Services, this dovish tone could lead to rate cuts by the Reserve Bank of India (RBI) as well.

4. Anticipation of Earnings Growth

Market participants are optimistic about an earnings revival starting in Q1FY26, which is expected to further bolster the domestic market. Projections indicate a 12-14% growth in earnings over the next year, driven by a resurgence in discretionary spending, as highlighted by Lokapriya.

5. Easing Foreign Capital Outflow

Although foreign portfolio investors continue to withdraw from the Indian market, the pace of their selling appears to be slowing. G. Chokkalingam, Founder of Equinomics Research, noted that the intensity of outflows has decreased. This stabilization could provide a cushion for the domestic market, suggesting a more favorable outlook moving forward.

In summary, the recent rally in the Indian stock market reflects a combination of improved valuations, positive economic indicators, and expectations of future earnings growth. As the market adjusts to these shifts, investors are encouraged to remain optimistic about the potential for continued gains.

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