3,000 points in 3 days: What's driving the Sensex rally?
What's the story
The Indian stock market has witnessed a massive turnaround in the last few sessions, with the Sensex surging by nearly 3,000 points. The rally was primarily driven by foreign institutional investors (FIIs) returning to the market after months of sustained selling. On November 2 and November 3 alone, the Sensex gained over 1,233 and 1,225 points, respectively.
Market performance
Nifty crosses 23,800 mark
The Nifty index has also joined the rally, crossing the 23,800 mark after closing at 23,440.80 on Monday and 23,810.85 on Tuesday.
The rally was bolstered by better-than-expected corporate earnings, falling crude oil prices, and improving global sentiment.
However, the major factor behind this market turnaround is the return of foreign buying.
Investor behavior
FIIs have turned net buyers
On November 3, FIIs were net buyers of Indian equities worth ₹6,836.81 crore.
This came after net purchases of ₹3,114.68 crore on November 2 and share purchases worth ₹3,598.54 crore on October 30.
In total, FIIs bought equities worth nearly ₹13,550 crore over these three sessions alone, an encouraging sign given their heavy withdrawal from the market this year.
Market sentiment
Change in FII sentiment driving market rally
Dr. V K Vijayakumar, Chief Investment Strategist at Geojit Investments Limited, said the reversal in FII sentiment has been the principal factor behind the change in market mood.
He noted that "there is a distinct change in the market mood now" and attributed it to "the sudden reversal of the FII stance toward India."
He also stressed strong corporate earnings and attractive valuations as fundamental support for this rally.
Tax implications
Foreign investors' return eases pressure on Indian equities
The return of foreign investors is significant as their selling had been a persistent overhang for Indian equities. The latest buying has helped reverse some of that pressure.
The recent improvement in foreign flows coincides with a period of relatively strong corporate earnings, helping investors reassess valuations in some of India's largest companies after the market correction.
Tax relief
FII inflows coincide with capital gains tax debate
The improvement in FII flows comes amid a renewed debate over India's capital gains tax structure.
SEBI has reportedly recommended that the government remove long-term capital gains tax on foreign equity investments.
These proposals are part of SEBI's pre-Budget recommendations and are not binding.
The final decision rests with the government, which has acknowledged investor concerns but hasn't promised any tax cuts yet.