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The Indian equity markets experienced a significant resurgence on Friday, November 29th, with the benchmark indices, Sensex and Nifty, demonstrating a robust 1 percent increase. This marked a sharp reversal from the preceding day's steep sell-off, as bullish sentiment returned. The rally was primarily driven by a confluence of factors, including strong buying interest from domestic investors, attractive valuations resulting from a recent market correction, and renewed confidence in India's economic growth trajectory. This positive momentum was evident across various key sectors, contributing to the overall market upturn. The Sensex closed at 79,832, a gain of 789 points, while the Nifty reached 24,153, surpassing the 24,100 mark after a gain of 239 points. Market breadth remained positive, with a significant number of advancing shares outnumbering declining ones.
One of the crucial factors contributing to the market rally was the recent correction in Indian equities, which led to more reasonable valuations. This made certain stocks more appealing to investors, prompting selective buying. Experts like Ashish Ranawade, head of products at Emkay Wealth Management, highlighted the emergence of attractive valuation pockets following the correction, presenting opportunities for strategic stock selection. The Nifty 50 and Sensex had experienced a decline of nearly 8 percent from their September highs. The price-to-earnings (P/E) ratio for the Nifty, which had peaked at 25.8 in early October, well above its one-year average of 21.6, moderated to 22.58 by the end of October and is now estimated around 21x. This moderation in P/E ratios, coupled with the overall correction, created a more favorable investment climate.
The surge in domestic buying interest played a pivotal role in counterbalancing the outflows from foreign institutional investors (FIIs). Nirav Karkera, Head of Research at Fisdom, emphasized the significant renewed buying interest, particularly from domestic institutions. He highlighted the robust structural undercurrent of domestic investor sentiment, which effectively offset the selling pressure from FIIs. Factors such as positive results from the Maharashtra state elections and a favorable domestic growth outlook further bolstered confidence in the government's policies and contributed to the market's positive trajectory. The exclusion of India from adverse trade policies under the incoming US administration also removed a significant overhang, further enhancing investor confidence. In the derivatives market, improved sentiment from new entrants and short-covering in broader markets also fueled the rally in benchmark indices.
The rally was broad-based, with significant gains observed across various sectors. The Pharma, Healthcare, IT, Auto, and Infrastructure sectors all saw substantial increases. Sectors like Auto and IT, which had experienced losses the previous day, rebounded strongly, gaining around 0.8 percent each. Individual stocks like M&M, Maruti Suzuki, HCL Tech, and TCS saw significant gains. The Pharma and Healthcare sectors performed exceptionally well, with the Nifty Pharma index surging 2.29 percent and the Nifty Healthcare index rising 2.06 percent. Sun Pharma and Cipla were among the top performers in these sectors. Heavyweight stocks like Bharti Airtel and Reliance Industries also contributed significantly to the Nifty's gains, further bolstering overall market sentiment. The expectation that FII selling might soon plateau or even reverse into buying also provided a sense of relief to the market.
While the current rally is attributed to domestic buying, improved valuations, and short-covering, experts caution against complacency and warn of the potential for continued volatility. Karkera noted that while bouts of profit-taking and speculative trading are likely to persist, the underlying structural strength of the market remains intact. Technically, the Nifty's movement around the 24,100 mark suggests that the next significant hurdle lies at 24,350. Support levels are identified at 23,800 and 23,680, potentially offering buying opportunities if confirmed by price action. On the upside, a sustained move above 24,350 could propel the index towards 24,800 and 25,000. Conversely, there’s also a possibility of a short-term counter-trend bounce, potentially leading the Nifty towards 24,770 and 25,000. However, it's crucial to avoid extrapolating yesterday's sharp fall and consider that the correction may not be entirely over. Overall, the market outlook remains a blend of optimism and caution, with experts advising investors to exercise prudence and seek professional advice before making any investment decisions.