Sensex, Nifty rebound: Will the relief rally on Dalal Street continue or fizzle out?

Stock market today: While the market did show some signs of recovery today, the sharp decline in the final hours has left retail investors in an uncertain situation.

In Short

• Stock markets show brief rebound, but uncertainty remains for investors
• Sensex ends modestly higher after initial surge, uncertainty lingers
• Experts warn against celebrating stock market rally as short-term bounce

It was (almost) a good day on Dalal Street as the benchmark indices gained over 1% each in early trade, bringing much-needed relief to investors after seven consecutive sessions of losses. But by the time today's session came to a close, the Sensex and Nifty had shed almost all of their gains.

Having surged over 1,000 points during intraday trade, Sensex ended just 81.81 points higher at 77,420.82, while the Nifty50 managed to end at 23,518.50. The broader market indices, which had seen notable gains earlier in the day, also tumbled and were set to close with only marginal increases.

While the market did show some signs of recovery today, the sharp decline in the final hours has left retail investors uncertain.

Experts caution against reading too much into today’s rally, suggesting it’s too early to declare that the stock market downturn is over. They believe more caution is needed as the market still faces challenges.

“What we are seeing is a short-term relief rally with markets bouncing from oversold conditions with Nifty's relative strength index (RSI) slipping below 30, a level considered as oversold,” Gaurav Garg, Lemonn Markets Desk, told IndiaToday.in.

“Benchmark indices have posted seven consecutive sessions of losses—the longest losing streak in 20 months—and we are seeing a short-term reversal which is overdue,” he added.

NO SHORT-TERM REBOUND LIKELY

Garg explained that the stock markets have been falling as a reaction to “worsening fundamentals after disappointing Q2 earnings”.

“Even after a price correction of more than 10%, benchmark Nifty 50 P/E ratio (on a 12m fwd basis) stands at 20.5x, a 12% premium to its 10y average multiple of 18.3x,”Garg noted.

“Valuations have moderated from high multiples of 22x but given the downward trend in near term earnings estimates, we do not expect any sustainable rebound in the near term,” he added.

INFLATION, INTEREST RATE CUT CONCERNS

The latest inflation data has compounded problems on Dalal Street as it is likely to delay interest cuts, even as some senior ministers have called for lower rates.

“On the macro front, market worries seem to compound with the latest inflation print adding to the concerns of growth slowdown while expectations for RBI interest rate cut gets pushed further into early FY26,” Garg said.

In addition, Garg said a stronger US dollar and higher US treasury yields after Donald Trump’s election victory is a “double whammy for Indian markets” that have been reeling under record foreign outflows.

“Relentless foreign selling continued for 35 consecutive sessions with outflows amounting to Rs 27,600 crore in November first half over and above the record 1.14 lakh crore in October,” Garg said.

WHEN WILL MARKET CORRECTION END?

The market correction is likely to persist unless there is a shift in some key fundamental factors, such as record foreign outflows, a disappointing Q2 earnings season and growth slowdown, and inflation worries.

“All of these added up into a perfect storm for the markets over the last one month or so. What we are seeing is a classic de-rating in valuation multiples as markets adjust their earnings growth expectations for coming quarters, especially after a disappointing Q2 season,” Garg said.

“As such, our view is a rangebound market in the near term, with downward bias, until more clarity emerges on rate cuts, stabilisation in earnings estimates and halt in foreign selling.”

(Disclaimer: The views, opinions, recommendations, and suggestions expressed by experts/brokerages in this article are their own and do not reflect the views of the India Today Group. It is advisable to consult a qualified broker or financial advisor before making any actual investment or trading choices.)