Sensex jumps 900 points, Nifty 50 settles near 23,200. 5 key reasons behind stock market rise post US Fed’s status quo

Indian stock market: Key indices of the Indian stock market, the Sensex and the Nifty 50, ended with healthy gains on Thursday, March 20, mirroring the US stock market trend after the US Federal Reserve kept interest rates unchanged as expected and signalled two rate cuts this year.

It was the fourth consecutive session of gains for market benchmarks. The Sensex has gained 3.4 per cent, while the Nifty 50 has risen 3.5 per cent in the last four sessions.

The Sensex jumped over 1,000 points, while the Nifty 50 reclaimed 23,200 during the session.

Finally, the Sensex closed at 76,348, up 899 points, or 1.19 per cent, while the Nifty 50 settled at 23,190.65, up 283 points, or 1.24 per cent.

Mid and small-cap segments of the market underperformed as the BSE Midcap index climbed 0.61 per cent and the Smallcap index rose 0.73 per cent.

The overall market capitalisation of the firms listed on the BSE rose to over ₹408 lakh crore from ₹405 lakh crore in the previous session, making investors richer by ₹3 lakh crore in a day.

The Indian stock market rose, following gains on Wall Street, even though the US central bank did not reduce rates and revised growth and inflation forecasts.

The S&P 500 and tech-heavy Nasdaq jumped 1.08 per cent and 1.41 per cent, respectively, after the US Federal Reserve kept its benchmark interest rate steady at 4.25-4.50 per cent.

Why is the Indian stock market rising?

The Indian stock market's rally is driven more by domestic factors than the U.S. Fed's policy decision. The Nifty 50 has gained over 3% in March so far, rebounding after five consecutive months of losses.

Here are five key factors behind the recent rise in the Indian stock market:

1. Valuation comfort

After a sharp correction from peak levels, the Indian stock market is comfortable with its valuation at this juncture, which is attracting investors to buy quality stocks.

"Domestic macro has been largely good, and with the price corrections, the valuations have come off," said Pankaj Pandey, the head of research at ICICI Securities.

According to brokerage firm Emkay Global, much of the valuation froth has subsided, and most indices, including SMIDs (small and mid-caps), are trading below long-term average P/Es (price-to-earnings ratio).

2. Strengthening macro indicators

Recent macroeconomic data have assuaged concerns about economic growth losing momentum, influencing market sentiment.

After three quarters of moderation, the Indian economy is showing signs of revival. India's GDP (gross domestic product) grew 6.2 per cent in the December quarter of the current financial year (Q3FY25).

Retail inflation, based on the Consumer Price Index (CPI), was at 3.61 per cent in February, down from 4.26 per cent in January.

The Index of Industrial Production (IIP) grew by 5 per cent in January, up from 3.2 per cent in the previous month.

Experts say the stock market is discounting the durability of the Indian economy's growth.

"India's economy is far more substantial at a GDP of 6 per cent plus; banks have low NPAs with strong balance sheets capable of funding private and public capex of ₹11 lakh crores over the next 12 months," Chakri Lokapriya, the CIO of Equities at LGT Wealth India, wrote for Mint.

3. Expectations of further rate cuts by the US Fed, RBI

Even though the US Fed maintained a status quo in its March policy meeting, it signalled that the rate reduction cycle has not ended and that there could be two rate cuts this year. Moreover, Fed Chair Jerome Powell did not sound too hawkish, which seems to have influenced market sentiment.

"Powell came off a little dovish in the presser. He did not sound too concerned about inflation expectations and was inclined to view the rise in inflation due to tariffs as transitory," Madhavi Arora, Lead Economist at Emkay Global Financial Services, observed.

With inflation easing, the Reserve Bank of India (RBI) is also expected to cut rates in April.

"While the RBI’s consistent efforts to ease system liquidity will imply that durable liquidity will soon turn into a surplus, the April rate cut possibility is solid, with one further cut possible ahead," Arora said.

4. Hopes of earnings revival

The market is expecting an earnings revival from Q1FY26, which could trigger a fresh rally in the domestic market.

"India's earning growth is likely at 12-14 per cent for the next 12 months and acceleration for 2027. Given that markets are forward-looking, we can expect a rally to begin about a quarter from now," said Lokapriya.

Brokerage firm Emkay Global believes that the forecast of Nifty's earnings per share growth of 13.6 per cent has little downside risk to it, fueled by a discretionary consumption recovery.

5. Intensity of foreign capital outflow eases

Even though foreign capital outflow from the Indian market continues, its intensity is showing signs of easing, which is positive for the domestic market.

"FPIs (foreign portfolio investors) continue to sell, but in the last few days, the magnitude of their selling in value term has come down," said G. Chokkalingam, Founder & Head of Research, Equinomics Research Private Limited.

"We believe that the continued fall in the domestic market is likely to be arrested by the end of this month (March 2025). We expect the overall domestic market to give a decent return and a lot of quality SMC stocks to recover substantially in FY2026. We suggest increasing the allocation to the equity asset class till the end of March 2025," Chokkalingam said.

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Disclaimer: This story is for educational purposes only. The views and recommendations above are those of individual analysts or broking companies, not Mint. We advise investors to check with certified experts before making any investment decisions.