Markets Rebound On Banking Rally, Softer Crude And Easing Volatility

Indian equity benchmarks ended higher on Tuesday, supported by strong buying in banking and financial stocks after the Reserve Bank of India unveiled details of a concessional forex swap facility aimed at encouraging overseas fund-raising by banks and public sector enterprises.

The BSE Sensex rose 394.50 points, or 0.54%, to close at 73,918.76, while the NSE Nifty50 gained 119.10 points, or 0.52%, to settle at 23,242.10. Market breadth remained firmly positive, with 2,694 shares advancing against 1,343 declines on the NSE.

The rally was broad-based, with the Nifty Midcap index gaining 1.3% and the Smallcap index advancing 1.7%, indicating strong participation beyond frontline stocks.

Banking Stocks Lead Recovery

Financial stocks emerged as the biggest contributors to the market's gains. The Bank Nifty climbed nearly 2%, with all 14 constituents ending in positive territory after the RBI's measures to lower hedging costs and facilitate overseas borrowing.

Sectorally, the Nifty PSU Bank index surged 3.6%, while the Nifty Bank index gained 2% and the Private Bank index advanced 1.6%. Realty stocks also witnessed strong buying, with the sectoral index rising 1.6%.

Among the Nifty50 constituents, InterGlobe Aviation, Jio Financial Services, Eicher Motors, State Bank of India and Apollo Hospitals were the top gainers. ONGC, Titan Company, NTPC, Power Grid Corporation and Tech Mahindra ended among the major losers.

Except for IT and Media, all sectoral indices finished in positive territory.

Softer Crude, Lower Volatility Support Sentiment

Investor sentiment improved after geopolitical concerns eased following a pause in hostilities between Iran and Israel, leading to a decline in crude oil prices.

The market also received support from a sharp decline in volatility. India VIX, often referred to as the market's fear gauge, dropped 8.51% to 15.58, indicating reduced nervousness among traders and encouraging risk-taking.

The Indian rupee strengthened as well, ending 36 paise higher at 95.35 against the US dollar compared with Monday's close of 95.71.

Vinod Nair, Head of Research at Geojit Investments, said the market was witnessing a relief rally after recent sharp declines.

"Domestic markets are witnessing a mild recovery after the recent sharp decline, supported by a pause in Iran-Israel tensions and softer crude prices. However, sentiment remains fragile, with continued FII outflows and higher bond yields highlighting persistent concerns around evolving global macro dynamics," he said.

Nair added that investors are now focused on upcoming US inflation data, which could influence expectations around US Federal Reserve policy and global liquidity conditions.

Technical View

According to Vatsal Bhuva, Technical Analyst at LKP Securities, the Nifty has shown signs of a pullback after finding support near the 23,150-23,200 zone.

"Nifty witnessed a recovery after forming an inverted hammer candlestick near its key support zone, indicating buying interest at lower levels. Follow-through strength suggests the index may extend its pullback towards the 23,350-23,400 zone in the coming sessions," he said.

However, Bhuva cautioned that the broader trend remains weak as the index continues to trade below its 20-day and 50-day moving averages while maintaining a lower-high and lower-low structure.

Support for the Nifty is seen in the 23,000-23,100 range, while immediate resistance is placed around 23,350-23,400. Market participants will also closely watch foreign investor flows, global bond yields and US inflation data for further direction in the near term.