Markets Stage Surprising Rebound After Budget Day Slump
In a dramatic turnaround that caught many investors off guard, Indian stock markets staged a significant recovery on Monday, just one day after suffering substantial losses during the budget presentation. The benchmark indices not only erased much of Sunday's losses but also comfortably outperformed the broader market, signaling a selective but notable resurgence in investor confidence.
Benchmark Indices Lead the Recovery
After sliding nearly 3% intraday on Sunday and closing nearly 2% down, the Nifty 50 climbed 1.06% on Monday to close at 25,088.40, while the Sensex rose 1.17% to reach 81,666.46. This recovery was particularly impressive given the depth of the previous day's selloff and the lingering concerns about near-term growth prospects.
The benchmarks significantly outperformed the broader market, with Nifty Midcap 100 gaining 0.96%, and Nifty Smallcap 250 rising just 0.56%. This performance gap suggests that investors focused primarily on blue-chip companies and index heavyweights during the recovery phase.
Sectoral Performance and Analyst Perspectives
Among sectoral indices, Nifty Auto and Nifty Oil & Gas emerged as the best performers, each surging approximately 2% on Monday. However, market analysts remain cautious about interpreting this rebound as a genuine trend reversal.
"Today's rebound looks more like a pause than a trend reversal, with the market still searching for direction," said Kunal Parar, vice president - technical research and algo at Choice Equity Broking. He expects the Nifty 50 to correct another 200 points from the 25,000 mark before attempting a sustained recovery, indicating a phase of range-bound and largely directionless trade ahead.
According to Nilesh Jain, head - technical and derivatives research analyst (equity research) at Centrum Broking, the markets staged a sharp rebound from oversold levels, with Nifty closing above the 25,000 mark, largely driven by short covering. However, he noted that immediate resistance is placed at the 200-day moving average of around 25,210, and a decisive move above this level would be necessary to confirm a short-term trend reversal.
Factors Driving Monday's Recovery
Several factors contributed to Monday's market resurgence:
- Fading budget disappointment as much of the negative sentiment had already been priced in during Sunday's trading session
- Supportive global cues including a nearly 4% slip in oil prices after reports indicated potential easing of tensions between the US and Iran
- Strong performance from index heavyweights with Reliance Industries' stock jumping 3%, while other major constituents including HDFC Bank, ICICI Bank, and Bharti Airtel each gained around 1%
- Technical factors including short covering and buying at perceived bottom levels
Budget Analysis and Market Implications
Market experts have offered nuanced assessments of the budget's impact on equities. "The budget had a very granular focus on laying the building blocks for the future and maintaining policy continuity, but could have been punchier from the point of addressing near term concerns with regard to growth," said Taher Badshah, president and chief investment officer of Invesco Mutual Fund.
Post-budget analysis from major financial institutions suggests that while the budget reinforced long-term priorities and policy continuity, it offered limited support for near-term growth or earnings. Goldman Sachs noted that policymakers continue to prioritize macro and market resilience over near-term growth spurts, reflected in steady fiscal consolidation and strategic timing of policy measures.
Investment Outlook and Strategic Considerations
Looking forward, market participants expect equities to remain range-bound in the near term, with buying likely to be limited to select stocks. Foreign investor flows remain cautious, and few immediate triggers are in sight to drive sustained market momentum.
"We do think the last 15 months have been a reboot opportunity with significant policy resets in the backdrop of geopolitical developments and global macro uncertainties," said Harish Krishnan, chief investment officer - equity at Aditya Birla Sun Life AMC. He emphasized that investors need to assess investment opportunities through a fresh lens, recognizing that different themes and sectors are likely to emerge as winners over the coming 3-4 years compared to the previous cycle.
According to Badshah, investors should now focus on a cyclical earnings revival in FY27, with return expectations remaining measured at around 10-12% for FY27 compared with 6-7% last year. Some market experts also noted that potential positive developments, such as a trade deal with the US or fading momentum in the AI trade globally, could channel flows toward India and improve market sentiment.
The market recovery, while welcome, appears to represent a temporary respite rather than a fundamental shift in sentiment. With concerns about near-term growth and earnings still lingering, and foreign investor flows remaining cautious, the path ahead for Indian equities seems likely to be characterized by volatility and selective opportunities rather than broad-based bullish momentum.
