Sensex, Nifty Bounce Back with 1% Jump: 3 Key Factors Driving the Rally

Markets Today: Domestic investors took a sigh of relief as benchmark indices rallied after 10 consecutive days of decline. In the last month alone, Sensex and Nifty dropped over 5% as tensions over Trump's tariff call and continuous foreign capital outflow weighed heavily on investor sentiment. Besides, turbulent macros and lower-than-expected manufacturing PMI index took an added toll on the market mood.

Wednesday's stock market breather came as a much-needed relief for D-street. At 11:55 am, BSE Sensex was trading around 73,810 level, up by 1.21% or 820 points. Whereas, NSE Nifty was trading above 22,350 level mark, up by over 1.26% or 277 points.

"Though sentiment has not turned positive, there are signs that the index is finding support in the 21,800–22,000 zone. In the short term, we might witness a recovery. However, a decisive fall below 21,800 could change the current equation," said Rupak De, senior technical analyst at LKP Securities.

While tensions continue to loom, the current rally is owing to the following reasons-

1. Strong Performance by Service Sector

While the manufacturing activity took a hit as indicated by the HSBC Manufacturing Purchasing Managers Index dropping to a 14-month-low of 56.3, the services sector managed to deliver a strong performance.

The HSBC services PMI surged to 59 last month as compared to January's low of 56.5. This was largely owing to stabilised foreign demand and rising export levels.

2. Tensions now loom over the US

As Trump's tariff play begins with countries like Canada, Mexico and China on the initial radar, analysts are expecting the same to have a negative impact on US economy as well. In trade wars, there are only losers. The S&P 500 index dropped over 1.2% or 71 points to settle at 5,778 level. Dow Jones witnessed an even sharper blow, with the index plummeting by over 1.5%.

"It would be difficult for the US to get away unscathed from the retaliatory tariffs imposed by China, Canada and Mexico. Inflation in the US will rise and the Fed will sound hawkish. A sharp correction in the US stock market is likely. This will hurt Trump’s popularity and the negative wealth effect of a sharp market correction can aggravate the growth slowdown in the US. Soon the Trump regime will realise this," said V K Vijayakumar, chief investment strategist, Geojit Financial Services.

3. Dollar index slips

The US dollar index was trading marginally below at 105 level. The nations' 10-year treasury yields also experienced a decline as concerns over inflation heightened. Fed's slower-than-expected pace of rate cuts coupled with the ripple effects of tariff play are altogether weighing down investor sentiment.