After five months of nonstop sell-offs, India’s stock market finally showed some signs of life, extending rally for the second day in a row on March 6, 2025.
In the broader market, the rally was sharper in the small-cap and micro-cap space, while mid-cap saw only modest gains.
The Nifty Smallcap 100 and Nifty Microcap 250 indices gained 1.32 per cent and 2 per cent, respectively, while the Nifty Midcap 100 rose 0.37 per cent.
Out of the 13 major sectoral indices, 12 ended the session in the green. The Nifty Oil & Gas index rose 2.59 per cent to emerge as the top sectoral gainer, followed closely by Nifty Metal, which gained 2.34 per cent. The only sector to close in the red was Nifty Realty, but its decline was minimal.
The Sensex and Nifty have climbed over 2.5 per cent since their recent lows, but the real action is in the small-cap and mid-cap indices, which have surged by 5-7 per cent, bouncing back even stronger.
After months of decline, with the correction deepening in recent weeks, the market has seen a sharp recovery in the past few days. The question now is whether this recovery signals a sustainable rally ahead or is it merely a dead cat bounce.
Why Stock Market Went Up Today
Ajit Mishra, senior vice-president, research, Religare Broking said, “The recent cool-off in crude oil and the dollar, along with the potential negotiations on US tariffs, has improved global sentiment and fuelled this rebound”.
Vinod Nair, head of research, Geojit Financial Services, said the market showed resilience, owing to positive global cues following Trump’s softened tariff stance on automakers from Canada and Mexico amidst the weakening dollar index.
A correction in crude oil prices, influenced by a slowdown in demand, and further economic stimulus from China also helped in igniting optimism in the energy and metals sectors, Nair said.
“Gains were further supported by strength in heavyweight banking and consumption stocks driven by improved liquidity conditions," he added.
Is There Value in the Market
Kotak Institutional Equities in their strategy report dated March 3, 2025, said, “We do not find much value in the market despite the severe market correction”.
It added: “Most parts of the market are expensive on an absolute basis or on a historical basis, with consumption stocks trading at full-to-frothy valuations, especially in the context of short-term growth issues and medium term disruption risks, investment stocks trading at fair-to-full valuations and outsourcing stocks trading at fair-to-full valuations, especially in the context of short-term demand (IT services) and market (pharmaceuticals) risks."
According to the brokerage, only banks and non-banking financial companies (NBFCs) seem to be reasonably valued.
Is This Rally a Dead Cat Bounce
According to Shrikant Chouhan, head equity research, Kotak Securities, this is not a dead cat bounce, as the current rally is responding to changes in both global and domestic macroeconomic conditions.
He says: “Although the impacts of tariffs are still uncertain, there are signs they are beginning to slow down. Additionally, the dollar index is falling, the 10-year bond yield is cooling off from its highs, Brent crude oil is below $70 per barrel, and the RBI is providing liquidity to the system as needed. Further, market valuations are becoming cheaper in some cases.”
According to Chouhan, this could instead be seen as either a recovery rally or a pullback rally, following the recent declines from the highs of 23,800 for Nifty and 82,300 for Sensex, which were reached after the Budget announcement. He also noted that until now, a “meaningful pullback” had been absent.
However, Kotak Institutional Equities has expressed caution about ‘narrative’ stocks. Narrative stocks are stocks that are heavily driven by a popular or compelling story, trend, or hype rather than solid fundamentals or financial performance.
“Many such stocks are trading at unfathomable valuations despite the 30-50 per cent correction in their stock prices in the past few months,” the report said.
The report cautioned investors clinging to hopes of a revival in these stocks and said, "The cat may already be dead. The cat will likely be dead if it is dropped from a sufficient height (despite a cat’s fabled nine lives) and the image will be too ghastly to imagine.”
