Buoyed by positive global cues and a conciliatory tone from US President Donald Trump regarding Greenland, Indian equity markets witnessed a robust broad-based rally on Thursday, January 22. This surge snapped a three-session losing streak, injecting fresh optimism among investors.
Market Performance Snapshot
The benchmark Sensex climbed 398 points, or 0.49%, to close at 82,307.37. Similarly, the Nifty 50 index advanced 132 points, or 0.53%, settling at 25,289.90. The rally extended to broader markets as well, with the BSE Midcap index rising 1.28% and the BSE Smallcap index gaining 1.13%.
This sharp upmove significantly boosted investor wealth. The total market capitalisation of BSE-listed companies increased by approximately ₹5 lakh crore in a single session, rising from ₹454 lakh crore to nearly ₹459 lakh crore.
Key Drivers Behind the Market Rally
Analysts point to a confluence of five major factors that propelled the Indian stock market higher, transforming the recent bearish sentiment into a decisive bullish charge.
1. Fading US-EU Trade War Fears
President Donald Trump's altered stance on Greenland acted as a primary catalyst for a global relief rally. On Wednesday, Trump stepped back from his earlier threat to impose tariffs on European nations. He indicated that an outline for a future agreement concerning Greenland had been discussed with NATO Secretary General Mark Rutte.
"Trump's message that the US would 'refrain from imposing tariffs on Europe' removes the looming threat of a US-Europe trade war, which was a significant drag on market sentiment," explained VK Vijayakumar, Chief Investment Strategist at Geojit Investments. This development calmed nerves that had been frayed by fears of escalating trade tensions and their potential global economic repercussions.
2. Renewed Hope for an India-US Trade Deal
Beyond the easing of transatlantic tensions, rising optimism about a potential trade agreement between India and the United States further bolstered market confidence. Media reports quoted President Trump expressing respect for Prime Minister Narendra Modi, whom he called a "fantastic man" and a "friend."
Trump's statement that the two nations were "on track to reach a good trade deal" was viewed positively by market participants, adding to the overall constructive sentiment.
3. Short Covering After Sustained Selloff
The positive shift in global sentiment triggered significant short covering in the domestic market. Prior to Thursday's rally, Indian indices had been under considerable selling pressure for three consecutive sessions. From Monday to Wednesday, the Sensex had plummeted 1,661 points (2%), with the Nifty 50 witnessing a similar decline.
With global uncertainties showing signs of abatement, traders rushed to cover their short positions. "The relief rally today can be substantial given the presence of around two lakh short contracts in the market. The current market structure is conducive for such short-covering," noted Vijayakumar.
4. In-Line December Quarter Earnings
The ongoing December quarter (Q3) corporate earnings season has provided fundamental support to the market. Experts highlight that results have largely met expectations so far. While profitability for some companies was impacted by one-time provisions related to new labour codes, the overall numbers have been healthy and devoid of major negative surprises.
"We anticipate an 8-10% earnings growth for Q3. Sectors like auto, NBFCs, and metals are likely to post robust double-digit growth, while banks, IT, and consumption may see single-digit growth. This should lead to a weighted average growth of 8-10% for the quarter, with a strengthening recovery expected in subsequent quarters," said Varun Goel, Senior Fund Manager at Mirae Asset Investment Managers (India).
5. Technical Support Levels Holding Firm
From a technical analysis perspective, the 25,000 level on the Nifty emerged as a critical support zone. According to Santosh Meena, Head of Research at Swastika Investmart, this level represents a vital psychological floor that coincides with the 200-Day Moving Average (200-DMA).
"This convergence of technical indicators makes 25,000 a 'make-or-break' zone for the index. Respecting and holding this support could facilitate a technical recovery or relief rally, especially as the market positions itself ahead of the Union Budget," Meena observed. However, he cautioned that a decisive break below this 200-DMA support could trigger a deeper correction and invite further selling pressure in the near term.
The collective impact of these factors—geopolitical de-escalation, trade deal hopes, technical rebounds, and stable earnings—fueled a powerful recovery, marking a significant turnaround for Indian equities after a period of decline.
