Indian Stock Markets Retreat After Strong Rally on Trade Deal News
Indian equity benchmarks opened in negative territory on Wednesday, taking a breather after posting one of their strongest single-day rallies in recent sessions. The market pullback comes just a day after significant gains driven by the announcement of a long-awaited trade agreement between India and the United States.
Market Performance at Opening Bell
At 9:16 AM, the Nifty50 index was trading at 25,671.95, registering a decline of 56 points or 0.22 percent. Meanwhile, the BSE Sensex stood at 83,472.11, down by 267 points or 0.32 percent. This opening in the red marked a contrast to Tuesday's substantial rally, which had eased tariff-related concerns that had been pressuring domestic stocks since late April.
Tuesday's Rally and Investor Sentiment
The sharp rebound witnessed on Tuesday was primarily fueled by renewed investor confidence following clarity on trade relations between India and the United States. Market analysts had projected that the positive momentum could potentially continue in the near term, supported by a combination of factors including recent trade developments with both the US and European Union, announcements made in the Union Budget, and stock-specific triggers emerging from the ongoing third-quarter earnings season.
Expert Analysis and Market Outlook
Dr. VK Vijayakumar, Chief Investment Strategist at Geojit Investments Limited, offered a nuanced perspective on the market dynamics. "The rally fuelled by the US-India trade deal will face hurdles to sustain," he noted. "The IT selloff in the US yesterday will drag the Indian IT index too, constraining the rally in the Indian market. Since valuations continue to be high, there is no fundamental support for a sustained rally."
Dr. Vijayakumar further elaborated on monetary policy expectations, stating that a trigger from the upcoming policy scheduled for February 6th is unlikely since the Monetary Policy Committee is expected to retain rates and stance with a dovish tone. "The economy is now in a state where a monetary stimulus is not required," he explained. "So, it is likely that the MPC will wait to see the monetary transmission play out."
Regarding Tuesday's significant rally of 639 points, the investment strategist attributed it mainly to foreign institutional investor short covering and their substantial buying of Rs 5,236 crores in the cash market. "Given the valuations, this bullish trend is likely to run out of steam," he cautioned. "Investors should stick to fairly valued largecaps. The sectors that are expected to gain from exports to the US, like textiles and apparels, gems and jewellery, and marine processing will witness some more price action."
Institutional Activity and Global Cues
Exchange data revealed that foreign portfolio investors returned as strong buyers during Tuesday's session, purchasing equities worth Rs 5,236.28 crore. Domestic institutional investors also provided support with net purchases of Rs 1,014 crore, indicating broad-based institutional participation in the market rally.
However, global cues presented a mixed picture. Wall Street ended sharply lower on Tuesday as fears that artificial intelligence could intensify competition in the software space unsettled investors. Additionally, caution ahead of quarterly results from major technology companies Alphabet and Amazon, due later this week, further weighed on sentiment in US markets, creating headwinds for global equity sentiment.
Sectoral Performance and Economic Indicators
While the broader market showed signs of consolidation, certain sectors continued to demonstrate resilience. Dr. Vijayakumar pointed to positive auto numbers for January suggesting that buoyant demand continues in that sector. This indicates that despite broader market volatility, specific industries may continue to perform based on fundamental factors and domestic demand patterns.
The market's reaction to the trade deal announcement highlights how geopolitical developments and international trade agreements continue to significantly influence investor sentiment and capital flows in emerging markets like India. As the market digests these developments, attention now turns to corporate earnings, global market trends, and domestic economic indicators for further direction.
