Stock market today:
BSE Sensex and Nifty50, the Indian equity benchmark indices, rallied strongly in trade on Tuesday. While BSE Sensex rose over 1,100 points intraday,
Nifty50 went above 23,100. BSE Sensex ended the day at 75,901.41, up 535 points or 0.71%. Nifty50 closed at 22,957.25, up 128 points or 0.56%.
Indian benchmark equity indices showed significant gains on Tuesday, with banking and financial stocks leading the surge after the Reserve Bank of India introduced measures to enhance banking system liquidity, sparking speculation about potential interest rate reductions in February.
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Why BSE Sensex and Nifty50 rallied today
1) RBI's Liquidity Enhancement InitiativesThe RBI implemented measures to boost banking system liquidity, including open market operations to acquire government securities worth Rs 60,000 crore across three instalments on January 30, February 13, and February 20, 2025. The bank also scheduled a 56-day Variable Rate Repo auction for Rs 50,000 crore on February 7, 2025, and a USD/INR buy/sell swap auction of USD 5 billion with six-month tenure on January 31, 2025.
"The Indian market appears to be oversold and is set for a rebound. The RBI's announcement of measures to boost liquidity in the banking system by around Rs 1.5 trillion is positive for the market. This raises the prospect of a rate cut by the MPC in the February policy meeting. Banks are likely to benefit," said Dr. V K Vijayakumar, Chief Investment Strategist, Geojit Financial Services.
2) Interest Rate Reduction AnticipationFollowing RBI's latest liquidity injection, demands for rate reductions intensified. Morgan Stanley anticipates the central bank will begin a modest rate reduction cycle from the February 7 meeting whilst maintaining a neutral position.
"We expect the RBI to commence the rate easing cycle with a 25bps rate cut, reflecting the current domestic growth-inflation dynamics. In addition, we expect the central bank to add durable liquidity and keep a close watch on currency to limit excessive volatility," Morgan Stanley's Upasana Chachra said.
Rate-sensitive sectors, particularly banking and financial stocks, recorded substantial gains. Private banks including HDFC Bank, Axis Bank, and ICICI Bank topped Nifty50 gainers, whilst financial institutions like LIC Housing Finance, Bajaj Finance, Chola Finance, and Mahindra & Mahindra Financial Services increased by up to 6%. The real estate sector gained 2.1%.
Key contributors HDFC Bank, ICICI Bank, Axis Bank, and Bajaj Finance added 650 points to the Sensex's overall increase.
3) Reasonable Market Valuations Post Recent DeclineCurrent market valuations have reverted to levels consistent with historical averages following the recent downturn
"After the correction, the market is now trading at fair valuations, which are in line with long-term (10-year) averages. Investors can utilise the opportunity to buy fundamentally strong high-quality stocks. The outperformance of largecaps over mid-and smallcaps is a healthy trend," Vijayakumar said.
4) International FactorsMarket sentiment improved as US Treasury yields decreased. The ten-year US Treasury yields fell by 9.5 basis points, remaining stable at 4.55% during Asian trading sessions. Furthermore, Federal Reserve fund futures indicated additional rate reductions, incorporating 9 basis points of reduction by the year's end.
The 2% reduction in oil prices, indicating reduced energy demand, helped ease inflation concerns and enhanced market confidence.
5) Value Investment OpportunitiesThe current market surge was supported by increased buying activity following substantial corrections in broader indices. The Nifty Next50 index has decreased by more than 22% from its highest point, whilst mid-cap and small-cap indices have experienced declines of roughly 15% and 20%, respectively.