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The Indian stock market experienced a significant surge on Tuesday, with the benchmark BSE Sensex soaring by 1,211.33 points (1.57%) to reach 78,398.07, and the Nifty50 rising by 342.00 points (1.46%) to reach 23,703.05 at its intraday high. This remarkable rally mirrored gains in Asian markets and was primarily attributed to the US administration's decision to temporarily pause planned tariffs on Canada and Mexico. This move eased global trade war anxieties and injected a wave of optimism into the international financial landscape. The market capitalization of BSE-listed companies saw a substantial increase of Rs 3.4 lakh crore, bringing the total to Rs 423.70 lakh crore, reflecting the widespread positive sentiment.
A key factor contributing to the market's bullish trajectory was the US's temporary suspension of tariffs. The Trump administration's decision to initiate negotiations with Canada and Mexico, following the imposition of tariffs, was interpreted as a calculated strategy – to exert pressure through tariffs and then negotiate favorable trade deals. This approach, analysts suggest, might be employed in future negotiations with China as well. The potential avoidance of a full-blown trade war, which would negatively impact the US economy, significantly contributed to the positive market sentiment. Experts like V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services, highlighted this strategic approach as a major catalyst behind the market's surge. He pointed out that the temporary freezing of tariffs represents a calculated risk aimed at achieving mutually beneficial trade agreements.
Further bolstering the positive market momentum was the decline in the US dollar index. The dollar index, which measures the greenback's value against a basket of currencies, fell by 0.56% to 108.90, while the euro dropped 0.67% to $1.0293. This weakening of the dollar is linked to the suspension of tariffs and positive data indicating a recovery in US manufacturing activity. These developments have lessened expectations of a Federal Reserve interest rate cut in March, contributing to the dollar's decrease. The strengthening Indian rupee, a direct consequence of the falling dollar, further fueled the market's upward trend. Vijayakumar emphasized that this decline in the dollar index is particularly beneficial for India, anticipating increased investments from Domestic Institutional Investors (DIIs) in discretionary consumption sectors.
The positive global sentiment, fueled by the changes in US trade policy, had a ripple effect on the Indian market. Key Asian indices, including Japan's Nikkei, Korea's Kospi, and Hong Kong's Hang Seng, all surged by more than 1%, reflecting the widespread optimism triggered by the developments. This positive global backdrop significantly boosted investor confidence in the Indian market. Furthermore, the anticipation of a potential rate cut by the Reserve Bank of India (RBI) during its Monetary Policy Committee (MPC) meeting scheduled for February 5-7 added to the market's upbeat sentiment. Economist Rahul Bajoria of BofAS India believes that growth and inflation data warrant monetary easing, anticipating a 25 basis point cut in the repo rate to 6.25%, potentially accompanied by reductions in the Cash Reserve Ratio (CRR) or significant bond purchases.
The automobile sector also played a significant role in the market's rally. Strong January sales figures, indicating sustained demand, led to a surge in the shares of automobile manufacturers. The Nifty Auto index climbed 1.8%, with 14 out of 15 constituents showing gains. Government initiatives to increase farm productivity and expand credit access are expected to further boost demand for tractors, farm equipment, and entry-level two-wheelers. Additionally, the increased income tax exemption limit under the new tax regime is projected to stimulate demand for budget-friendly cars. Strong sales figures from major players like Maruti Suzuki, Eicher Motors, and Hero MotoCorp further reinforced the positive sentiment in the sector. Vijayakumar anticipates increased investment from DIIs in sectors such as automobiles, white goods, and food delivery, riding on the positive momentum of the recent budget.
The widespread positive sentiment also extended to the broader market, with investors capitalizing on recent market declines by actively purchasing stocks. Twelve out of the thirteen major domestic sectors opened higher, with small- and mid-cap stocks climbing 1% each. This 'buying the dip' strategy reflected investor confidence in the market's long-term potential. In the 30-share blue-chip index, companies like Infosys, Tata Motors, Larsen & Toubro, and Tata Steel were among the top gainers, while Power Grid, Hindustan Unilever, Nestle, and Asian Paints lagged. Despite the market's upward trajectory, market analysts maintained a cautious optimism. Anand James, Chief Market Strategist at Geojit Financial Services, while acknowledging the positive momentum, indicated that a target range of 23,700-23,840 for the Nifty50 is maintained, with 23,440 serving as a key resistance level.
Source: Why Market Is Rising Today: Know Key Factors Behind Sensex Soaring 1,200 Points