Rally Without Breakout: Indices Rise, Nerves Rise Too

Despite strong optimism and repeated predictions that Indian markets would scale new record highs, equities once again fell short during the fortnight. The benchmark indices, BSE Sensex and Nifty 50, registered gains of 2 to 3 per cent and edged closer to their previous peaks, yet were unable to surpass them. While headline indices displayed resilience, the underlying market texture revealed weakness, particularly in the broader market space. The enthusiasm visible in Large-Cap counters did not extend to mid and Small-Cap segments.[EasyDNNnews:PaidContentStart]

Analysts noted that the Small-cap Index is currently trading near a crucial six-month support zone from where it has rebounded several times. However, a breakdown below this level may trigger a deeper corrective phase. Market volatility also showed signs of returning. Nifty VIX, widely tracked as a fear indicator, remained subdued for most of the fortnight but spiked sharply in the last trading session, ending with a rise of more than 8 per cent.

A key macro development influencing sentiment was the continued slide in the Indian rupee, which recently touched a historic low near 90 against the U.S. dollar. Currency weakness affected sectors unevenly and played a role in sectoral rotation. The rally in benchmark indices was largely supported by strength in heavyweight IT, Banking and auto stocks. The rebound in IT has been underpinned by several supportive factors including the rupee depreciation that benefits technology exporters, a sharp correction already seen in the sector in recent months, expectations of another U.S. rate cut this year and renewed optimism expressed by domestic brokerages regarding medium-term growth prospects.

While investors are glued to their screens hoping to see the markets hit record highs, the rising VIX, falling rupee, and continued FII outflows are raising concerns.

Market experts also highlighted a shift in investor preference from purely defensive positions to businesses with visible earnings momentum and greater clarity on policy direction. The banking sector continued its upward trajectory. Sentiment improved on the back of healthy second quarter results, stronger visibility in margins as deposit costs moderated, and expectations related to possible reforms including a higher foreign ownership limit in public sector banks and renewed discussions on bank consolidation.

Conversely, Real Estate stocks lagged as investors awaited clearer triggers related to policy signals. Metals saw profit booking after an extended rally and remained out of favour until fresh evidence of demand revival becomes visible. Foreign institutional investors continued to sell, withdrawing more than ₹12,000 crore from equities, while domestic institutions provided firm support with inflows of about ₹37,600 crore. The upcoming Q2 GDP data, key U.S. macro releases, progress on the India-U.S. trade agreement and future FII flows will guide the market’s direction. Stay tuned for further updates!

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