Sensex ends 400 points higher; why did the Indian stock market rise today? EXPLAINED

After suffering losses in the last three consecutive sessions, the Indian stock market benchmarks, the Sensex and the Nifty 50, saw healthy gains on Wednesday, May 21.

The Sensex opened at 81,327.61 against its previous close of 81,186.44 and jumped more than 800 points, or 1 per cent, to an intraday high of 82,021.64.

The Nifty 50 started the day at 24,744.25 against the previous close of 24,683.90 and jumped over 1 per cent to an intraday high of 24,946.20. 

Finally, paring some gains, the Sensex closed 410 points, or 0.51 per cent, higher at 81,596.63, while the Nifty 50 settled with a gain of 130 points, or 0.52 per cent, at 24,813.45.

Broad-based buying in the market lifted the BSE Midcap and Smallcap indices by 0.90 per cent and 0.51 per cent, respectively.

Investors got richer by about ₹3 lakh crore in a day as the overall market capitalisation of BSE-listed firms rose to nearly ₹441 lakh crore from ₹438 lakh crore in the previous session.

Why did the Indian stock market rise today?

Here are five key factors that drove the Indian stock market higher today:

1. Short covering in an oversold market

Experts believe short covering may be driving the stock market's rise today. Over the past three days, the Sensex had declined about 2 per cent, and this correction appears to have prompted investors to buy select heavyweight stocks at lower prices.

2. Fall in the US dollar

The weakness in the US dollar also seems to have influenced domestic market sentiment. The Dollar Index (DXY), which tracks the US dollar against a basket of six major currencies, traded half a per cent lower at 99.60 at 11:30 AM IST.

A weaker dollar is positive for emerging markets like India, as it can encourage greater foreign capital inflows.

3. Broder sentiment remains positive

Experts say the market undercurrent remains positive despite the recent correction due to elevated valuations.

India's economic growth outlook remains healthy, while earnings are also expected to improve further from hereon.

According to SBI economists, "despite weathering effects precipitated by global upheavals, Indian economy stays largely resilient." They forecast the GDP growth for Q4FY25 around 6.4-6.5 per cent.

Inflation has also fallen significantly, reaching a six-year low in April. This has raised hopes that the RBI will go for at least two more rate cuts of 25 bps each this year.

4. Market eyes US-India trade deal

News flows surrounding a US-India trade deal has been influencing market sentiment. Experts say until clarity emerges on the trade deal between the two countries, the domestic market may remain volatile.

Meanwhile, a PTI report quoted Moody's Ratings saying on Wednesday that "India is well-positioned to deal with the negative effects of US tariffs and global trade disruptions as domestic growth drivers and low dependence on exports anchor the economy."

5. Technical factor

Technical experts say the short-term trend remains positive as long as the Nifty 50 holds above the 24,400 level decisively.

"We believe investors should not overreact to the recent dip and instead wait for clearer signals. While the breach of the 24,800 mark in Nifty has dampened near-term momentum, the short-term trend remains positive as long as the index holds above the 24,400 level decisively. In the meantime, we advise traders to avoid aggressive long positions and focus on sectors or themes that are showing relative strength," said Ajit Mishra, SVP of research at Religare Broking.

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, as market conditions can change rapidly, and circumstances may vary.