Indian equity benchmarks are set for a cautious start on Wednesday after witnessing a historic surge in the previous session, as early pre-opening trends indicate profit-booking following Tuesday’s blockbuster rally triggered by the India–US trade deal.
Markets had rallied sharply after Washington reduced tariffs on Indian goods to 18 per cent from 50 per cent, fuelling optimism around export growth, capital flows and currency stability. However, early indications this morning suggest some cooling off after the exuberant run-up.
The BSE Sensex started today’s trade just under 83,400, crashing more than 350 points, while the NSE Nifty50 began the morning a little below 25,640, taking a beating of slightly over 130 points, around 9:15 AM.
In the pre-open hour, the Sensex slipped close to 500 points and tested 83,250, and the Nifty breached 26,700, as of 9:10 AM.
After The Euphoria: Profit-Booking Sets In
Tuesday marked one of the strongest single-day performances for Indian equities in recent months. The Sensex surged 4,205.27 points, or 5.14 per cent, to hit an intra-day high of 85,871.73 before settling at 83,739.13, up 2,072.67 points or 2.54 per cent. The Nifty had similarly logged sharp gains during the session.
The rally added massive wealth to investors, with the market capitalisation of BSE-listed firms jumping by Rs 12,10,877.45 crore to Rs 4,67,14,754.77 crore ($5.16 trillion).
While the momentum was powerful, market participants now expect consolidation as valuations remain elevated and global cues turn mixed.
Trade Deal A Structural Positive, But Sustainability In Question
“The rally fuelled by the US-India trade deal will face hurdles to sustain. The IT selloff in the US yesterday will drag the Indian IT index, too, constraining the rally in the Indian market. Since valuations continue to be high there is no fundamental support for a sustained rally. A trigger from monetary policy scheduled on 6th Feb is unlikely since the MPC is expected to retain the rates and stance with a dovish tone. The economy is now in a state where a monetary stimulus is not required. So, it is likely that the MPC will wait to see the monetary transmission play out. The auto numbers on January suggest that the buoyant demand continues,” said VK Vijayakumar, Chief Investment Strategist, Geojit Investments.
Vijayakumar noted that Tuesday’s 639-point rally was largely driven by FII short covering and cash market purchases worth Rs 5,236 crore. “Given the valuations, this bullish trend is likely to run out of steam. Investors should stick to fairly valued largecaps. The sectors that are expected to gain from exports to US, like textiles and apparels, gems and jewellery and marine processing will witness some more price action.”
RBI MPC Begins Today
Attention will also turn to the Monetary Policy Committee meeting which is set to begin today. Governor Sanjay Malhotra will announce the final decision on key rates on February 6, although expectations are that rates and stance will be retained with a dovish tone.
Market participants will assess whether the tariff-driven optimism translates into sustained foreign inflows or whether valuations and global volatility trigger near-term consolidation.
