Dalal Street had a historic “relief rally” today, as the broad markets opened with a giant gap at their highest level. The BSE Sensex rose more than 2,600 points in early morning trading, and the NSE Nifty 50 went above the psychological 23,800 mark.
The rally came after a breakthrough diplomatic development in the Middle East in which the United States and Iran struck a two-week ceasefire, averting a localised battle with each other that was threatening to cripple the global economy.
The White House had announced in a statement last week that it would open the Strait of Hormuz again. So for weeks, a shutdown of this key maritime chokepoint had sent the crude oil prices to record highs and fueled fears of runaway inflation in energy-dependent countries like India.
That oil price drop is a great tailwind for the Indian economy as it decreases the import bill and cuts the fiscal deficit. Investors also got a boost from the fact that the India VIX, or “fear index” was down nearly 20% in the first hour. Investors who had been sitting on the sidelines waiting for a political crisis to arrive and in the name of geopolitical ‘war clouds’ rushed back to high-beta sectors.
Banking, Auto and Fast-Moving Consumer Goods (FMCG) led the way, and big names such as HDFC Bank and Reliance Industries recovered so much from their low points. The rally in India was in line with the same trend in Asian markets as the Nikkei and South Korea's Kospi rose 5% each, and energy prices were lower than we have seen this morning as the threat of an imminent energy crisis dissipated.
And now RBI Governor Sanjay Malhotra is due to give the first bi-monthly monetary policy for the fiscal year 2027. While the MPC was expected to keep a hawkish tone as oil-driven inflation had led to high oil-driven inflation, the sudden drop in crude prices has led some analysts to expect a more "neutral" or even accommodative attitude at the time of its meeting, though.
With the geopolitical risk premium being wiped out on the charts and domestic fundamentals still strong, analysts think that if the Nifty maintains its hold above 23,800, it could be a fresh lifetime high in the next session.
