Nifty Rallies 5% In 5 Sessions: 5 Key Factors Driving Rally?

The Nifty 50 extended its winning streak to a fifth consecutive session on November 4, gaining 149 points to close at 23,960.60, its highest level in two months. The index has surged 5.56 per cent over the past five sessions, while the Sensex has gained 5.54 per cent.

The rally has been led by large-cap stocks, as the broader market struggling to keep pace. The Nifty Midcap 100 advanced 3.89 per cent during the same period, while the Nifty Smallcap 100 gained just 1.14 per cent.

Several factors have supported the recovery, including better-than-expected September-quarter earnings, renewed foreign investor buying, a correction in crude oil prices and improving global sentiment.

1. Strong Q2 Earnings Lift Heavyweight Stocks

A majority of Nifty 50 constituents have reported steady-to-strong earnings for the September quarter, providing support to the benchmark index.

IT stocks, including HCL Technologies, Tech Mahindra and TCS, recovered after their quarterly results, bouncing back from their respective 52-week lows. Reliance Industries, another heavyweight, gained over 11.64 per cent on November 2 after reporting more than 40 per cent year-on-year growth in net profit for the September quarter.

The rally in these heavyweight stocks has helped the benchmark index gain ground quickly.

Harsh Gupta Madhusudan, chief India strategist at Ionic Asset, said, "September quarter earnings growth was very strong and valuations are still very reasonable, especially for large caps and financials."

2. FPIs Return To Indian Equities

Foreign portfolio investors (FPIs), who sold Indian equities worth Rs 34,843 crore in October, have resumed their buying activity. Over the last five sessions, foreign investors bought Indian equities worth Rs 14,789 crore.

The return of foreign flows has improved sentiment after sustained selling weighed on domestic equities in October.

3. Reverse AI Trade

Global investors have also become cautious about technology stocks amid concerns over elevated valuations and the returns on massive investments in artificial intelligence (AI) infrastructure.

Earnings-related disappointments and concerns over rising capital expenditure have triggered profit booking in several global technology stocks. Investors have consequently started looking at relatively affordable markets and sectors outside the global AI trade.

This has brought Indian equities into focus as a potential beneficiary of the shift in global investment flows.

4. Crude Oil Correction Eases Market Concerns

A sharp correction in crude oil prices has also supported the rally in Indian equities. Brent crude fell from a six-month high of around $117 per barrel to $102.4 per barrel on November 4, as investors assessed the impact of the Democrats' sweep in the US midterm elections on Trump's Iran policy. Uncertainty over the US approach towards Iran, including the possibility of renewed military action or a diplomatic solution, has kept oil prices volatile.

US President Donald Trump's comments favouring a peaceful resolution to the conflict also supported sentiment.

Lower crude oil prices benefit India as the country imports most of its oil requirements. If prices remain low, it could help bring down inflation, support the rupee and reduce costs for companies.

Ajit Mishra, senior vice president of research at Religare Broking, said, "Among the key drivers, a sharp decline in crude oil prices, amid diplomatic efforts involving the US, Iran and Qatar that raised hopes of de-escalation and eased concerns over potential supply disruptions, boosted investor sentiment."

5. Expectations Of LTCG Tax Relief

Expectations of a possible change in LTCG taxation have also supported market sentiment. Finance Minister Nirmala Sitharaman recently said the government would consider requests to review the tax structure on equity capital gains. A senior government official, according to a Moneycontrol report, has also confirmed that proposals to review LTCG taxation are being examined.

However, lower taxes alone may not be enough to attract sustained foreign investment.

Pranay Aggarwal, director and CEO of Stoxkart, said, "Reducing capital gains taxes could improve India's competitiveness and make the market more attractive to global funds. However, tax relief alone cannot ensure sustained FPI inflows. Indonesia, despite having a low 0.1 per cent tax on listed equity trades, has not consistently outperformed India. Investors ultimately seek good risk-adjusted returns, supported by earnings growth, stable policies, reasonable valuations and currency stability."

What Lies Ahead For The Market

The combination of improving earnings, lower crude prices and renewed foreign investor buying has strengthened the near-term outlook for Indian equities. Improving global sentiment following the US midterm election outcome has also supported expectations of better foreign flows into emerging markets.

Vinod Nair, head of research at Geojit Investments, in a post-market note, said that improving earnings visibility and domestic demand could keep the near-term outlook positive, although geopolitical tensions and volatile crude oil prices remain risks that could trigger profit booking.

The sustainability of the rally will depend on whether foreign investors continue buying and corporate earnings support the recent improvement in valuations. Any fresh escalation in West Asia or a rebound in crude oil prices could challenge the recovery.