Nifty and Sensex rally over 1% as market recovers from oversold conditions

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Indian stock markets saw a significant recovery on Tuesday, with both the Sensex and Nifty surging by over 1.25 per cent during the early trading hours.

The Nifty 50 index surged by more than 300 points, reaching 23,770, while the Sensex jumped over 1,000 points, climbing to 78,410, at the time of reporting.

Market experts have attributed this rally to positive global cues and an oversold market condition. However, they have also cautioned that several underlying challenges for Indian stocks remain, which could affect the sustainability of the rally. These challenges include persistent foreign portfolio investor (FPI) selling, albeit at a reduced pace, downgrades in corporate earnings, slower economic growth, and high real interest rates, all of which are dampening growth prospects.

Ajay Bagga, a banking and market expert, noted, "Positive global cues and a heavily oversold market are seeing a 1 per cent to 1.5 per cent 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 should be seen as a recovery from oversold levels."

Experts have also pointed out that technical indicators suggest further potential gains. The Nifty's rally could extend if it manages to close above the lower Bollinger Band, which is currently situated near 23,490.

Akshay Chinchalkar, Head of Research at Axis Securities, explained, "The Nifty's 300-point rally has the potential to extend, particularly given the strength of the recent downtrend. If the Nifty closes above the lower Bollinger Band today - currently near 23,490 - it would trigger a 'Bollinger outside inside' signal. This pattern typically occurs when the price closes below the band on the previous day, followed by a close above it. If this happens, the next logical upside target would be the 20-day moving average, which currently sits near 24,125. Support in the 23,200-23,300 area remains critical on the downside."

Despite the recovery, experts have stressed that this should not be mistaken as the start of a bullish trend. FPI selling is likely to continue, and while domestic investors with available funds may find opportunities in stocks that have corrected sharply, the overall sentiment remains cautious.

Shriram Subramanian, Founder and Managing Director of InGovern Research Services, added, "The markets are showing initial signs of recovery. FIIs will likely continue to sell, but domestic investors sitting on cash may find value in stocks that have been significantly corrected and are available at reasonable valuations. However, this bounce does not signal a bullish market."

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

Vijay Chopra, a market expert, stated, "Markets were oversold, and this bounce was long overdue. The markets bounced back from the 200-day moving average. If the Maharashtra election results are positive, the markets could resume their upward trajectory. It is essential that the market closes above 24,000 for a sustained rise. This could also mark the beginning of the Santa rally, which typically lasts until December."

In summary, while the markets have shown signs of recovery, experts remain cautious about the sustainability of this bounce amidst ongoing macroeconomic challenges.

(With inputs from ANI)