Sensex soars 1,400 points; investors earn nearly ₹6 lakh crore; 5 factors that drove the Indian stock market higher

Stock market today: The Indian stock market surged in morning trade on Tuesday, February 4, with broad-based buying pushing the benchmark Sensex up by 1,400 points and the Nifty 50 reclaiming 23,700. The mid-and small-cap segments also saw strong gains, with the BSE Midcap and Smallcap indices rising over 1 per cent each.

The Sensex opened at 77,687.60 against its previous close of 77,186.74 and jumped over 1,400 points to a level of 78,658.59. The Nifty 50 opened at 23,509.90 against its previous close of 23,361.05 and jumped 1.7 per cent to the level of 23,762.75.

At close, the Sensex was 1,397 points, or 1.81 per cent, up at 78,583.81, while the Nifty 50 was 378 points, or 1.62 per cent, up at 23,739.25.

The BSE Midcap index closed 1.35 per cent up and the BSE Smallcap index settled 1.20 per cent higher.

The overall market capitalisation (m-cap) of the BSE-listed firms rose to over ₹425 lakh crore from ₹419.5 lakh crore in the previous session, making investors richer by about ₹5.5 lakh crore in a day.

Several sectoral indices ended with robust gains. The Nifty Bank index jumped 2 per cent, while the Financial Services, the PSU Bank and Private Bank indices jumped over 2 per cent each.

The Nifty Oil and Gas index jumped nearly 3 per cent, while Metal, Pharma and IT indices rose over a per cent each. 

What drove the Indian stock market higher today?

Experts pointed out the following five factors behind the rise in the Indian stock market:

1. Positive global cues boost sentiment

Positive global sentiment spilt over into the domestic market, lifting investor confidence. Major Asian indices, including Japan's Nikkei, Korea's Kospi, and Hong Kong's Hang Seng, jumped up to 3 per cent following sudden changes in US trade policy.

2. Trump pauses Mexico and Canada tariffs

The tariff policies of US President Donald Trump have been a key factor weighing on global stock market sentiment of late. According to reports, the Trump administration has paused the proposed tariffs on Canada and Mexico, which appears to have lifted market sentiment.

"After the global sell-off in equity markets yesterday, there are positive signals today. The decision taken by Trump to temporarily freeze the tariffs on Mexico and Canada and start negotiations is a clear indication of President Trump’s strategy: That is, impose tariffs and then negotiate and strike a deal," said V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services.

"The same strategy is likely to be tried with China, too. It is important to understand that a full-blown trade war will be damaging for the US, too," said Vijayakumar.

3. RBI MPC: Hopes build for a 25 bps rate cut

The Reserve Bank of India's (RBI) Monetary Policy Committee (MPC) meeting is scheduled for February 5-7. Expectations are high that the central bank will start its rate reduction cycle by trimming benchmark rates by 25 bps.

According to Rahul Bajoria, India and ASEAN Economist, BofAS India, growth and inflation data both suggest the need to ease monetary conditions.

Bajoria expects the RBI to cut the Repo rate by 25 bps to 6.25 per cent in the February MPC. It can also take steps to inject durable liquidity by considering another reduction in CRR of 50 bps or substantial bond purchases through open market operations.

4. Some valuation comfort in large-caps

The Nifty 50 has declined 11 per cent from its peak, offering some comfort on the valuations front and making select large-cap stocks more attractive. This seems to have prompted investors to bet on stocks available on cheap valuation.

However, some key metrics still remain stretched, hinting at the possibility of further corrections.

According to brokerage firm Motilal Oswal Financial Services, the Nifty 50 is trading at a 12-month forward PE (price-to-earnings) ratio of 19.9 times. This is below its LPA (long-period average) of 20.6 times, at a 3 per cent discount. The 12-month trailing PE for the Nifty 50, at 22.6 times, is near its LPA of 22.7 times, at a 1 per cent discount, said Motilal Oswal.

However, the index's PB (price-to-book value) is 3.1 times, representing an 11 per cent premium to its historical average of 2.8 times. At 3.5 times, the 12-month trailing PB ratio for the Nifty is above its historical average of 3.1 times, at a 13 per cent premium, said the brokerage firm.

5. Technical factor: 23,250 a key support

The Nifty 50 ended at 23,361 in the previous session. Experts say the index has a key support at 23,200.

According to Rupak De, Senior Technical Analyst at LKP Securities, The Nifty has moved up following a falling wedge pattern retest, indicating the possibility of a decent rally in the short term. Additionally, the index has been sustaining above the critical 21EMA on the daily timeframe.

The RSI is in a bullish crossover and rising after forming a base on the daily timeframe, indicating strong momentum.

"In the short term, the index may move toward 24,050 and higher, while support levels are placed at 23,500 and 23,250," said De.

Analysts at brokerage firm Reliance Securities pointed out that the hourly average and the previous day's low coincide at 23,200 levels, which would be key to holding the current momentum. Resistance at 23,800 levels is the 50-day average.

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