Indian stock markets witnessed a strong rally on Thursday, with the Sensex and Nifty50 climbing over 1% each, buoyed by firm global cues and expectations of policy measures to stem the rupee's decline. The sharp upswing added more than Rs 4 lakh crore to the total market capitalisation of BSE-listed companies, pushing the overall valuation closer to Rs 463 lakh crore.
Key Reasons Behind the Market Rally
Possible Tax Cut on Bond Investments
One of the primary factors boosting sentiment was a report indicating that the government is considering a substantial reduction in taxes on bond investments by foreign investors. According to a Bloomberg report, the proposal, recommended by the Reserve Bank of India, is under active review by the Finance Ministry. Following the news, the rupee recovered some losses, and government bond prices strengthened, with the benchmark 10-year bond yield falling 2 basis points to 7.03 per cent. Expectations that such a move could revive foreign institutional investor inflows after sustained selling pressure lifted overall market sentiment.
Robust Corporate Earnings
A number of large companies have posted strong March-quarter results this earnings season. Morgan Stanley noted that the earnings cycle appears to be recovering after a six-quarter mid-cycle slowdown, with profit growth expected to gain momentum supported by reflationary measures from the government and the RBI, including interest-rate cuts, banking sector deregulation, and liquidity support. The brokerage also highlighted strong capital expenditure trends across sectors such as energy, defence, semiconductors, fertilisers, and data centres, along with major tax reductions and a growth-supportive fiscal stance.
Global Cues and US-China Meeting
Investor attention remained focused on the meeting between US President Donald Trump and Chinese President Xi Jinping, which was described as highly significant by analysts. The meeting marks the first visit by a US president to China in nine years since trade tensions escalated. Most major global markets traded with gains, with South Korea’s Kospi surging nearly 2 per cent, while Hong Kong’s Hang Seng posted modest gains. European equities also finished higher, and US markets closed firmly in positive territory, led by technology stocks.
Cooling Bond Yields
US Treasury yields eased marginally, providing relief to equity markets. The benchmark 10-year US Treasury yield slipped to 4.455 per cent, while the 30-year bond yield declined to 5.027 per cent. Lower bond yields often reduce the attractiveness of fixed-income investments, prompting investors to shift towards equities and other risk assets.
Despite the bullish undertone, several risk factors persist. The rupee touched a fresh record low of 95.8 against the US dollar, surpassing its previous low of 95.7950. The currency has weakened around 1.4 per cent so far this week, hitting new lows in every trading session from Tuesday through Thursday.
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