Nifty, Sensex rally over 1%; FPIs still selling, bounce back because of overselling

• Indian stock market recorded a strong recovery on Tuesday.
• Sensex and Nifty surged over 1.25% in early trade amid favourable global indicators.
• Experts however cautioned that the inherent challenges for Indian stocks remain.

Indian stock markets saw a strong recovery on Tuesday, with both the Sensex and Nifty surging over 1.25% in early trade. The Nifty 50 rallied more than 300 points to reach 23,770, while the Sensex jumped over 1,000 points to 78,410.

Market analysts attributed the upsurge to favourable global indicators and an oversold market scenario. Notwithstanding, they cautioned that the inherent challenges for Indian stocks remain.

These challenges encompass ongoing selling by foreign portfolio investors (FPIs), albeit at a reduced level, downgrades in corporate earnings, slower economic growth, and elevated real interest rates, which are stifling growth momentum.

Ajay Bagga, Banking and Market Expert stated "Positive global cues and a heavily oversold market are seeing a 1% to 1.5% bounce in the Indian markets today. The causes of the downtrend in Indian stocks are still very much present...FPI selling (though at a reducing intensity), downgrades to corporate earnings, slower economic growth and high real interest rates are proving a drag on growth impulses. Today's bounce in the Indian markets needs to be seen as a bounce from oversold zones".

Experts also noted that the technical indicators also pointed to the potential for further gains. The Nifty's rally has the chance to extend if it closes above the lower Bollinger Band, currently near 23,490.

Akshay Chinchalkar, Head of Research, Axis Securities said "The Nifty's 300-point rally has the potential to extend given a rare signal that's occurring, particularly given how strong the recent downtrend has been. If the nifty ends above the lower Bollinger band today – currently near 23,490 - it would generate something called a "Bollinger outside inside" signal which occurs when a close below the band on the previous day is immediately followed by a close above, it. If this were to occur today, the next logical upside target would be the 20-DMA which sits near 24,125 currently. Support inside the 23200 - 23300 area will remain critical on the downside".

Despite the recovery, experts emphasised that this move does not signify the start of a bullish trend. FPI selling is expected to continue, but domestic investors with available funds may find opportunities in stocks that have corrected significantly.

Shriram Subramanian, Founder and MD, InGovern Research Services "The markets are showing initial signs of recovery. FIIs will likely continue to sell, but domestic investors sitting on cash will see value in buying into stocks that have corrected significantly and are available at reasonable valuations. However, this move doesn't mean a bullish market".

Market sentiment could further improve depending on the Maharashtra election results. If the Nifty manages to close above 24,000, it could signal a more sustained upward movement.

Vijay Chopra, Market Expert said "Markets were oversold and this bounce was long due.. markets bounced back from 200 DMA.. if Maharashtra election results are good then markets can resume upwards journey. It's imperative that markets give closing above 24000 only then can we probably see the markets going up.. this could also be the start of the Santa rally which lasts till December.

Overall, while the markets showed signs of recovery, experts remain cautious about the sustainability of this bounce amid ongoing macroeconomic challenges.

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