On Tuesday, February 4, the Indian stock market jumped in morning trading as the Nifty 50 recovered 23,500 points and the benchmark Sensex rose more than 700 points due to broad-based buying. The BSE Midcap and Smallcap indices increased by more than 1% each, reflecting the robust gains in the mid- and small-cap segments.
After closing at 77,186.74, the Sensex opened at 77,687.60 and surged more than 700 points to reach 77,952. In contrast to its closing price of 23,361.05, the Nifty 50 opened at 23,509.90 and surged nearly 1% to 23,582.
At approximately 9:50 AM, the Nifty 50 was up 203 points, or 0.87 percent, at 23,563.80, while the Sensex was up 715 points, or 0.93 percent, at 77,902.25.
At that time, the BSE Smallcap index was trading 1.10 percent higher and the BSE Midcap index was up 1.38 percent.
Investors gained roughly ₹4.5 lakh crore in a single day as the total market capitalization (m-cap) of the BSE-listed companies increased to almost ₹424 lakh crore from ₹419.5 lakh crore in the previous session.
Why is the stock market in India rising right now?
Experts identified the following reasons for the Indian stock market's growth:
1. Positive cues from around the world improve mood
Investor confidence increased as a result of the positive sentiment that permeated the domestic market. Following abrupt shifts in US trade policy, major Asian indices, such as the Nikkei of Japan, the Kospi of Korea, and the Hang Seng of Hong Kong, all saw increases of more than 1%.
2. Trump pauses tariffs on Mexico and Canada
US President Donald Trump's tariff policies have recently weighed heavily on global stock market sentiment. According to reports, the Trump administration has paused the proposed tariffs on Canada and Mexico, which appears to have improved market sentiment.
"After yesterday's global equity market selloff, there are positive signals today. Trump's decision to temporarily freeze tariffs on Mexico and Canada and begin negotiations is a clear indication of his strategy: impose tariffs first, then negotiate and reach an agreement," said V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services.
"The same strategy is likely to be implemented with China as well. It is critical to understand that a full-fledged trade war will be detrimental to the United States as well," said Vijayakumar.
3. RBI MPC: Hopes build for a 25 basis point rate cut
The Reserve Bank of India (RBI) Monetary Policy Committee (MPC) will meet from February 5-7. Expectations are high that the central bank will begin its rate-cutting cycle by lowering benchmark rates by 25 basis points.
According to Rahul Bajoria, India and ASEAN Economist at BofAS India, growth and inflation data both point to the need to ease monetary policy.
Bajoria anticipates that the RBI will lower the repo rate by 25 basis points to 6.25 percent in the February MPC meeting. It can also take steps to inject long-term liquidity, such as reducing the CRR by 50 basis points or making significant bond purchases through open market operations.
4. Some valuation comfort for large-cap stocks
The Nifty 50 has fallen 11% since its peak, providing some comfort on valuations and making select large-cap stocks more attractive. This appears to have prompted investors to speculate on stocks with low valuations.
However, some key metrics remain stretched, indicating the possibility of further corrections.
According to brokerage firm Motilal Oswal Financial Services, the Nifty 50 has a 12-month forward PE (price-to-earnings) ratio of 19.9 times. This is less than its long-period average (LPA) of 20.6 times, with a 3% discount. Motilal Oswal said the 12-month trailing PE for the Nifty 50 is 22.6 times, which is close to its LPA of 22.7 times at a 1% discount.
However, the index's PB (price-to-book value) is 3.1 times, representing an 11% premium over its historical average of 2.8 times. The 12-month trailing PB ratio for the Nifty is 3.5 times higher than its historical average of 3.1 times, representing a 13% premium, according to the brokerage.
