Revealed: 3 reasons why Sensex and Nifty fail to sustain relief rally

Indian stock markets opened on optimism on Tuesday, providing some relief to investors after a seven-day losing streak. While benchmark indices Sensex and Nifty increased by over 1% in early trading, Sensex rose above 1,000 points during the day. However, most of these gains were erased by the end of the session.

While Sensex closed up 239.37 points at 77,578.38, Nifty50 improved only marginally despite a strong start and ended at 23,518.50. This volatility reflects investors’ ongoing caution amid weak earnings reports, persistent foreign outflows and broader economic concerns.

The main reasons why the rise in the market cannot continue are as follows:

PROFIT BOOKING AND WEAK Q2 EARNINGS

Market analysts said Tuesday’s rally was driven by short-term buying, but the momentum faded as investors opted to book profits. Vinod Nair, Head of Research at Geojit Financial Services, explained that the relief rally was short-lived due to consistent selling by foreign institutional investors (FIIs) and disappointing second-quarter earnings results.

“The recent correction in valuations may pause further declines, but a sustainable recovery depends on earnings recovery that could be picked up by central and state spending in the second half of the year,” Nair said. he said.

Gaurav Garg of Lemonn Markets Desk added that the crisis was due to worsening fundamentals. Despite the correction, Nifty’s price-to-earnings ratio remains at 20.5x, which is still above the 10-year average. “Valuations have moderated from higher levels, but the bearish trend in earnings estimates means a sustainable recovery is unlikely in the near term,” Garg said.

GLOBAL WINDS

Global factors, including a strengthening US dollar and rising US Treasury yields, continue to weigh on Indian markets. These conditions were further exacerbated by incessant foreign outflows.

FIIs earned Rs 27,600 Million in the first half of November by selling shares for 35 consecutive sessions. This comes after a record outflow of Rs 1.14 lakh crore in October.

In addition, inflation concerns and delays in interest rate cuts increase the pressure on the markets. Garg explained: “The latest inflation data has raised fears of slowdown in growth and pushed expectations of RBI rate cuts towards the beginning of FY26.”

He added that the ongoing economic difficulties in global markets, especially in the US and Europe, have created a “double negative” effect for Indian stocks.

TECHNICAL AND SECTORAL PRESSURE

From a technical perspective, markets remain weak. Tuesday’s gains were driven by strength in banking and IT stocks, while sharp selloffs in sectors such as metals and energy erased most of the initial gains.

Religare Broking Research Senior Vice President Ajit Mishra emphasized that the market remains under the control of the bears and every recovery is used as a selling opportunity. “Nifty’s movement reflects bearish sentiment. We maintain our ‘sell on the rise’ stance until there is a clear signal of reversal.”

Broader indices, including mid-cap and small-cap stocks, fared slightly better, posting gains of about 0.5%. However, overall market sentiment remains weak.

WHEN WILL THE MARKET RECOVER?

The ongoing correction in Indian stock markets is unlikely to end anytime soon unless fundamental factors improve. Experts believe that factors such as outflows, weak earnings and inflation concerns must stabilize for a sustainable recovery to occur.

Garg explained: “This is a classic downgrade in valuation multiples as markets adjust earnings growth expectations. Until there is clarity on rate cuts, earnings stabilization and a pause in foreign sales, the market is likely to remain in the range with a downward bias.”

Vishnu Kant Upadhyay of Master Capital Services added: “From a technical perspective, today’s short-term rally is fragile. Market sentiment will remain cautious unless Nifty rises decisively above 24,000.”

“Stocks with strong earnings reports continue to be in the limelight. After analyzing the market, I advise market participants to adopt the ‘surge’ strategy while short-term investors hedge their portfolios,” said VLA Ambala, Co-Founder, Equities. Market Today (SMT).

(Disclaimer: The views, opinions, advice and recommendations expressed by experts/brokers in this article are their own and do not necessarily reflect the views of India Today Group. You are advised to consult a qualified broker or financial advisor before engaging in any actual investment or trading options. )