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Nifty & Sensex Stage Surprise Rally Despite Volatility: 5 Reasons Why

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Nifty & Sensex Stage Surprise Rally Despite Volatility: 5 Reasons Why
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The stock market witnessed a dramatic turn of events on Monday. The benchmark Sensex index, which had been on a downward slope for a while, surprised everyone with a sudden 1,000-point recovery in the afternoon session.  The NSE Nifty surpassed the 22,100 mark after touching an intraday low of 21,821.05.

The BSE Sensex climbed to 72,763.68, marking a gain of 99.21 points or 0.14 percent. Initially dipping to 71,866.01 in the morning, it swiftly bounced back as the session unfolded, reaching a peak of 72,863.56, up by 997.55 points during the day. 

This bounce back came amidst high volatility, leaving investors scratching their heads about the reasons behind this sudden surge. Volatility remains high, as evidenced by the climbing India VIX (India Volatile Index), a gauge for market nervousness.

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Source: NSE
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Source: NSE

Nifty & Sensex Gainers Of The Rally

TCS, Sun Pharma, and a few private lenders like HDFC Bank Ltd, ICICI Bank Ltd, and Axis Bank Ltd surged by over 1 percent each. Additionally, Larsen & Toubro, Tata Steel, Power Grid, UltraTech Cement, and Kotak Mahindra Bank witnessed gains. You can also learn more about gift nifty with our blog.

Possible Reasons Behind The Nifty & Sensex Rally

So, what exactly triggered this unexpected recovery? Here’s a breakdown of some possible explanations:

  • Short Covering: When stock prices fall, some investors engage in a practice called short selling. They essentially borrow shares, sell them, hoping the price will continue to dip, and then repurchase them later at a lower price to return them. However, if the price rises unexpectedly, short sellers must buy back shares to avoid further losses. This buying activity can contribute to a rapid price increase, which some analysts believe may have happened on Monday.
  • Value Buying: The recent decline in the Nifty & Sensex might have presented an attractive entry point for some investors, particularly long-term ones. With lower prices, some investors might have viewed this as an opportunity to buy quality stocks at a discount, believing the market had overcorrected. This buying pressure could have helped push the index upwards.
  • Technical Correction: Stock markets are complex ecosystems, and technical factors can sometimes affect price movements. Sometimes, a sharp decline can be followed by a temporary bounce back simply due to technical indicators signaling oversold conditions. This doesn’t necessarily reflect any fundamental change in the market but can be a natural correction within a downtrend.
  • Reassurance Amidst Election Jitters: India’s ongoing general elections have undoubtedly been a source of uncertainty for the market. Lower-than-expected voter turnout and a resurgent opposition could have caused some investors to withdraw. However, the possibility of a stable government outcome might have instilled some confidence. This could have led investors back to the market, contributing to Nifty and Sensex’s rebound.
  • Global Market Movements: The Indian stock market doesn’t operate in isolation. Movements in other major international markets can also influence investor sentiment here. While no definitive link has been established yet, a positive shift in other markets could have indirectly boosted investor confidence in India, leading to the rise of Sensex.

While Monday’s recovery is a welcome sign for some, it’s too early to say whether it could be a turning point or a temporary blip. Only time will tell how the market reacts to the upcoming election results and other global economic factors.

Looking Ahead: A Word of Caution

The coming weeks may be a rollercoaster ride as investors navigate the election outcome and its impact on the market. Staying informed, conducting thorough research, and maintaining a long-term perspective are essential for navigating market volatility. Seeing how the market unfolds in the coming days and weeks will be interesting.

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I’m Archana R. Chettiar, an experienced content creator with
an affinity for writing on personal finance and other financial content. I
love to write on equity investing, retirement, managing money, and more.

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