Bulls Run Wild: Nifty Leaps Over 2% as Tariff Tensions Ease

Benchmark indices continued their upward trend on Tuesday, after a long weekend, following strong global cues. The domestic equities market opened with a gap-up and maintained its bullish tone for the rest of the session as Nifty 50 index extended gains from Friday and closed 2.2% higher at 23,328.55 points and Sensex closed 2.1% higher at 76,734.89 points.

All the stocks in the benchmark Nifty, barring ITC, closed in green on Tuesday. Heavyweights such as HDFC Banks, ICICI Bank, Larsen & Toubro, Reliance Industries and Axis Bank together contributed 1.12% gains of the 50-stock index.

IndusInd Bank, Shriram Finance and Tata Motors were the best performers in trade today, with 6.7%, 5.2% and 4.6% gains, respectively. The broader market also moved in tandem with the benchmarks, as all major small and midcap indices roared 2-3%.

Overall market breadth tilted in favour of advances as nearly 85% of the stocks rose on the bourses today.  On the other hand, India VIX, the volatility index, dipped nearly 20%, reflecting easing investor concerns.

"The rally is fuelled by the surprise pause in reciprocal tariffs which continued today led by the exemption on electronics goods also,” Vinod Nair, head of research at Geojit Investments said in a note.  However, sectors such as capital goods and real estate that do not have a significant exposure to the US markets also soared higher today.

Bank stocks stepped up after major lenders announced deposit rate cuts today. The largest private sector bank HDFC Bank cut its deposit interest rates by 25 basis points. “Auto stocks gained on potential tariff relief and banking stocks benefited from deposit rate cuts,” Nair said.

Among sectors, financial services, automobile and auto components and construction sector moved the Nifty 50 index by 1.5%. All the sectoral indices ended higher today, with the Nifty Realty, Nifty Auto and Nifty Bank indices soaring 3-6%.

What’s Ahead?

Global brokerage firm Morgan Stanley Monday cut its BSE Sensex target for December by 12% to 82,000 points, implying a mere 7% upside potential over the today’s closing. This is a base case target considering certain factors such as all the tariff news is out and no recession in the US, among others, the brokerage said in research report. The brokerage has also cut down its earnings estimates for the India Inc. by 13% for the ongoing financial year.

However, in a bull and bear case the brokerage expects the Sensex to be near 91,000 and 63,000 points, respectively by December-end. Given the increasing global uncertainties amid the tariff-drama, the report added, "While the bias remains to buy domestic sectors with a cyclical bias, both overweight and underweight positions stand reduced".

Morgan Stanley said it is overweight on sectors such as financials, consumer cyclicals and industrials, while it is underweight on energy, materials, utilities and healthcare sectors. The market is shifting from one driven by macro conditions to one where stock-picking is likely to add alpha, according to the report. India's correlation of returns with global equities continues to fall and is lower than historical levels, Morgan Stanley said.