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Nifty, Sensex Rally on Strong Economic Data and Rate Cut Expectations

Indian Stock Markets Rally on Positive Economic Indicators and Rate Cut Expectations

The Indian equity benchmarks, Nifty and Sensex, closed higher on Friday, buoyed by encouraging domestic economic data and growing optimism around potential interest rate cuts by central banks. This positive sentiment was further amplified as broader market segments, including midcap and smallcap indices, outperformed the main benchmarks, signaling a widespread recovery in investor confidence. The session marked a strong end to the trading week, with gains driven by a combination of macroeconomic tailwinds and sector-specific buying interest.

Starting with the headline numbers, the NSE Nifty 50 index settled at 25,790.95, up by 0.91% or 234.75 points from its previous close. Similarly, the BSE Sensex advanced 0.81%, or 666.25 points, to finish at 84,544.31. These gains came amid relatively low volatility, as measured by the India VIX, which eased by about 2.5% to 12.35, indicating reduced market fear and a more stable trading environment. Intraday, both indices touched fresh highs, with Nifty scaling 25,849.25 and Sensex reaching 84,694.46, before some profit booking in the final hours tempered the enthusiasm.

A key driver behind this uptick was the release of upbeat economic data that painted a rosier picture of India's growth trajectory. Notably, the latest manufacturing PMI (Purchasing Managers' Index) for September came in at 57.5, signaling robust expansion in the sector despite global headwinds. This figure, compiled by S&P Global, beat market expectations and highlighted strong order books, increased production, and hiring activity. Complementing this, advance estimates for India's GDP growth in the second quarter suggested a pickup to around 7%, fueled by resilient consumer spending and a rebound in rural demand. Inflation data also provided relief, with the Consumer Price Index (CPI) moderating to 5.49% in August, staying within the Reserve Bank of India's (RBI) comfort zone of 2-6%. This cooling of inflationary pressures has fueled speculation that the RBI might consider easing monetary policy in its upcoming meeting, potentially cutting the repo rate by 25 basis points to stimulate borrowing and investment.

Adding to the bullish narrative were global rate cut bets, particularly following the US Federal Reserve's recent 50-basis-point reduction in interest rates. Investors are now pricing in further easing from the Fed, which could lead to capital inflows into emerging markets like India. This global liquidity boost has encouraged foreign institutional investors (FIIs) to turn net buyers, injecting over Rs 5,000 crore into Indian equities this week alone. Domestic institutional investors (DIIs) also remained supportive, with inflows exceeding Rs 3,000 crore, underscoring strong local participation.

While the benchmarks performed well, it was the broader markets that stole the show. The Nifty Midcap 100 index surged by 1.5% to close at 60,250, while the Nifty Smallcap 100 gained an impressive 2.1%, ending at 19,850. This outperformance reflects a shift in investor focus towards undervalued stocks in these segments, which have been correcting in recent months but are now seen as attractive bets amid improving economic fundamentals. Sectors like realty, consumer durables, and auto led the charge in the broader indices, with gains of 2-3%, driven by expectations of lower borrowing costs boosting housing and vehicle sales.

Sector-wise, the market rally was broad-based but with notable leaders. The Nifty Bank index rose 1.2% to 53,850, supported by heavyweight lenders such as HDFC Bank and ICICI Bank, which gained 1.5-2% each. Banking stocks benefited from the rate cut optimism, as lower rates typically enhance net interest margins and loan growth. The IT sector also shone, with the Nifty IT index up 1.8% at 42,500, propelled by positive commentary from global tech giants and a weakening rupee, which stood at 83.65 against the US dollar, aiding export-oriented firms like Infosys and TCS. On the flip side, the FMCG sector lagged, dipping 0.5% due to concerns over rural demand recovery, with stocks like Hindustan Unilever declining marginally.

Among individual stocks, standout performers included Bajaj Auto, which jumped 3.5% on strong monthly sales data, and Reliance Industries, up 2% amid reports of expansion in its retail and energy segments. Conversely, some profit-taking was evident in metal stocks, with Tata Steel and JSW Steel slipping 1-2% due to global commodity price fluctuations.

Market experts attributed the day's gains to a confluence of factors. Vinod Nair, Head of Research at Geojit Financial Services, noted that "the combination of steady PMI data and rate cut expectations has reinvigorated market sentiment, particularly in rate-sensitive sectors." He added that while global uncertainties like geopolitical tensions in the Middle East persist, India's domestic story remains compelling, with corporate earnings expected to grow 15-18% in the fiscal year. Similarly, Deepak Jasani from HDFC Securities highlighted the broader market's resilience, stating, "Midcaps and smallcaps are rebounding as investors hunt for value plays, supported by improving liquidity and economic indicators."

Looking ahead, analysts are optimistic but cautious. The upcoming US non-farm payroll data and RBI's policy review could influence near-term direction. If rate cuts materialize, it could propel Nifty towards 26,000 in the short term, but any escalation in global risks might trigger corrections. Valuation-wise, the Nifty trades at a forward P/E of around 22, which is above historical averages but justified by growth prospects.

In summary, Friday's session encapsulated a market in recovery mode, with upbeat economic data and rate cut bets providing the necessary catalyst. The outperformance of broader markets underscores a maturing rally, where gains are not confined to blue-chips but are spreading across the board. As India navigates global uncertainties, its strong fundamentals continue to attract investors, setting the stage for potentially sustained upward momentum in the weeks ahead. This positive close also helped the benchmarks log weekly gains of over 1%, reinforcing the bullish undertone in the Indian stock market. (Word count: 852)

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