Market Opens Strong as Trade Policy Shifts
Indian share markets posted impressive gains on Friday after the United States decided to suspend temporarily the 26% duties on Indian imports. The decision, until July 9, gave investors confidence despite increased global trade tensions. Sensex and Nifty key indices rallied, led largely by strong performances in banking, oil, and metal sectors.
The optimistic sentiment overpowered dismal cues in international markets. Market players were upbeat about the shift in trade trends and sought good news in monetary policy and corporate earnings.
Index Performance and Market Capitalization Growth
The BSE Sensex opened with high positive momentum, starting at 74,835.49 points up by 988 points from the previous close of 73,847. It touched an intraday high of 75,467.33, eventually closing at 75,157.26, with a net addition of 1,310.11 points. The NSE Nifty also went in the same direction, up by 429.40 points to close at 22,828.55.
Market cap of all the listed companies at the Bombay Stock Exchange surged by ₹7.85 lakh crore in a single day to ₹401.67 lakh crore (or approximately $4.66 trillion). This explosive growth is proof of renewed investor confidence on the back of trade tension easing with the US.
Rupee Appreciation and Crude Oil Movements
On the currency front, the Indian rupee appreciated by 58 paise against the US dollar, closing at 86.10. This appreciation follows higher foreign investment flows and a upbeat sentiment regarding the Indian economy following the relief on tariffs.
Meanwhile, global crude oil prices experienced a slight jump. Brent crude was at $63.53 per barrel, up 0.32%. While small, the increase is an indication of ongoing volatility in global energy markets amid geopolitical tensions.
US-India Trade Talks and Global Investment Shift
America's 90-day suspension of the 26% tariff on Indian products has set the stage for potential trade negotiations. Investors anticipate that this time will lead to a formal trade agreement between the two countries. US-China relations, however, remain tense with the US imposing a 145% tariff on Chinese goods and China imposing a 125% duty on American goods.
As increasing tensions between the two biggest economies make global capital gravitate towards stable economies, India, considered to be a beneficiary of this shift, is attracting foreign institutional investments (FIIs), thereby providing strength to the stock market rally.
Support from Monetary Policy by the Reserve Bank of India
The Reserve Bank of India has demonstrated a dovish bias, lowering the repo rate by 0.25% for the second consecutive time and shifting its policy stance from neutral to accommodative. These measures are for maintaining inflation at around 4% and accelerating economic growth.
This shift in monetary policy has been favorable to market sentiment, especially in the banking sector. Lower interest rates are expected to reduce the borrowing cost, hence encouraging consumption and investment by companies.
Short Covering and Anticipation of Corporate Results
In the wake of the recent upswing, several investors who previously had short positions began covering them. This short covering has contributed to a rapid surge in equities demand that has driven the market up. The most glaring evidence of this buying pressure came in banking, oil, and metals stocks.
Besides, expectations of improved-than-anticipated corporate numbers in the short term have been driving the sentiment. Analysts expect strong quarter numbers in the fourth quarter of FY 2024-25, particularly from banks. Optimistic earnings estimates are buoying investor sentiment and driving further buying interest.
