Why is Stock Market Rising Today: Sensex Surges 3,000 Points in 5 Days; Reasons Behind the Rally

Indian benchmark indices, the Sensex and Nifty 50, extended their winning streak for a fifth straight session on Friday, March 21, buoyed by strong gains in financial stocks.

The Sensex surged by 600 points (0.80%), while the Nifty 50 also climbed 0.80%, crossing the 23,350 mark during intraday trading.

Over the past five sessions, the Sensex has added more than 3,000 points, and the Nifty has gained over 4%, despite lingering global uncertainties.

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What's Driving the Market Upswing?

Market analysts attribute the recent rally to several key factors:

1. Easing Foreign Capital Outflows

A major turnaround in foreign investor sentiment has significantly contributed to the market’s positive momentum. Foreign portfolio investors (FPIs), who were net sellers for several months due to concerns over high valuations and global volatility, have recently started pouring funds back into Indian equities.

Their renewed interest is evident in recent activity, where FPIs turned net buyers, investing ₹1,463 crore on March 18 and ₹3,239 crore on March 20 in the cash market. This reversal is seen as a vote of confidence in the Indian economy, especially in comparison to other emerging markets, some of which are grappling with political instability or inflationary pressures.

2. Value-Based Buying Opportunities

The recent correction in the Indian equity market has led to improved valuations, which has created attractive entry points for long-term investors. After peaking at an all-time high of 85,978.25 in September 2023, the Sensex underwent a significant correction, shedding over 15% at one point.

This decline brought down the price-to-earnings (P/E) ratio of the index to around 21—comfortably below its two-year average of 23.6. Such valuation comfort, particularly in the large-cap segment, has encouraged both domestic institutional investors and individual investors to re-enter the market.

Investment experts suggest this phase could be ideal for investors to accumulate quality stocks through a bottom-up approach—focusing on company fundamentals rather than macro trends. 

3. Positive Economic Indicators

India’s economic fundamentals have continued to exhibit resilience. The latest macroeconomic data has shown encouraging trends, reinforcing the country's growth narrative. Retail inflation cooled to a seven-month low of 3.61% in February, helped by easing food and fuel prices, while industrial output, as measured by the Index of Industrial Production (IIP), expanded by 5% in January.

This improvement in industrial activity indicates that underlying demand is recovering steadily. Furthermore, robust government spending on infrastructure, especially in roads, railways, and energy, has provided a further cushion to economic activity. Fitch Ratings recently forecasted a 6.5% growth rate for the Indian economy in the upcoming fiscal year, citing domestic consumption and manufacturing revival as major drivers.

4. Anticipation of Rate Cuts

Monetary policy expectations are also playing a crucial role in sustaining market enthusiasm. With inflation gradually falling within the RBI's comfort zone, the central bank is expected to shift its focus toward supporting growth through accommodative measures. Analysts anticipate a 25 basis point cut in the benchmark interest rate during the RBI’s April meeting.

Globally, too, the sentiment is turning dovish. Although the US Federal Reserve kept rates unchanged in its March meeting, it signaled that it may implement two rate cuts before the year ends. These developments have boosted liquidity expectations in the equity markets and contributed to the rally across risk assets.

5. Anticipated Earnings Revival

Market participants are also banking on a turnaround in corporate earnings. After several quarters of muted performance due to input cost pressures and subdued consumer demand, Q4FY25 is expected to show stabilization, particularly in banking, IT, and auto sectors.

Looking further ahead, analysts believe earnings could see a sharper recovery from Q1FY26, backed by strong festive demand, better rural consumption, and margin improvements. This expected earnings uptick is likely to support higher valuations and sustain investor interest over the medium term.

Conclusion

The Indian stock market’s current rally is being fueled by a confluence of favorable factors—foreign investment inflows, attractive valuations, encouraging macroeconomic indicators, dovish monetary policy expectations, and hopes of corporate earnings revival. While global uncertainties remain, India’s relative stability and growth potential continue to attract both domestic and foreign investors. As always, experts advise caution, suggesting that investors should maintain a diversified portfolio and stay focused on long-term fundamentals rather than short-term market euphoria.