After a period of significant volatility, there are signs that the stock market may be on the path to recovery, offering a welcome relief for investors. On Thursday, major indices extended their gains, continuing the strong rebound seen in the previous session, with the Sensex rising 309.29 points to 74,042.19 and the Nifty50 climbing 114.80 points to 22,452.10 by early afternoon. The rally wasn’t limited to the blue-chip stocks, as midcap and smallcap indices also saw notable gains. While the market’s recent recovery has sparked cautious optimism, the global landscape remains fraught with uncertainty, especially in light of concerns about a potential trade war.
One of the primary catalysts for the improved market sentiment was the US’s decision to temporarily exempt auto imports from Canada and Mexico from newly imposed tariffs. This announcement provided a significant boost to Wall Street, with the S&P 500 rising by 1.1% and the Nasdaq climbing 1.5%. In addition to this, encouraging economic data from the US, including a higher-than-expected ISM Non-Manufacturing PMI and a solid rebound in factory orders, added to the positive outlook. Furthermore, Europe also saw a lift, as Germany exempted military and defense spending from its fiscal-spending rules, while China unveiled a sizable stimulus package to support its economy.
However, despite these positive developments, a global bond sell-off, which pushed Japanese benchmark yields to a decade-high, serves as a reminder that investors must remain vigilant. The market may be showing signs of recovery, but the risks posed by global economic tensions are still palpable.
Back home in India, the Reserve Bank of India (RBI) has introduced measures to support liquidity in the banking system, including two Open Market Operation (OMO) purchases worth Rs 50,000 crore each and a $10 billion USD/INR Buy/Sell Swap auction. These steps are expected to help ease liquidity constraints and further stabilize financial markets. Additionally, the Services PMI for India rose to 59 in February, signaling strength in the services sector, and the Indian rupee strengthened due to a weaker dollar index, which fell to 104.3.
Technically, the Nifty50’s recent rise above its 5-day exponential moving average (EMA) for the first time since February 6 suggests a shift in momentum, leading many analysts to believe that the market could be entering an uptrend. A combination of short-covering and foreign portfolio investors (FPIs) unwinding their substantial short positions in Indian stocks could be contributing to the market’s positive movement. However, market participants remain divided on whether this recovery is sustainable.
While some, like Prashanth Tapse, Senior VP of Research at Mehta Equities, are optimistic about a positive opening due to external factors such as the recovery in US markets and hopes of a delay in tariffs, others remain more cautious. Dr. VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services, warned of the uncertain geopolitical and trade environment, noting that while lower crude oil prices and RBI’s liquidity measures could benefit the Indian market, the ongoing trade tensions could create volatility.
From a technical standpoint, experts caution investors to tread carefully. While the market has seen a strong rally, they advise against calling it a confirmed bottom just yet. Sameet Chavan, Head of Research at Angel One, emphasized that while the market had been oversold and was due for a bounce, recent rallies have often been short-lived, and investors should closely monitor price action before making definitive conclusions. Similarly, Aditya Gaggar, Director of Progressive Shares, noted the formation of a bullish candlestick pattern, but warned that external disruptions, such as worsening trade tensions, could quickly derail the current momentum.
In conclusion, while the market’s recent gains are encouraging, there’s still a significant degree of uncertainty, both locally and globally. Investors should remain cautious, carefully tracking key resistance and support levels, and continue to monitor geopolitical and economic developments. For now, the recovery rally is a welcome sign, but the journey ahead is likely to be bumpy and fraught with risks.
