Optimism in the Air: How RBI’s Actions are Driving Market Momentum
Indian equities posted a sharp upswing on Friday as global trade developments and central bank policy decisions combined to spark widespread buying across sectors. Investor optimism surged as the United States temporarily relaxed hefty tariffs on Indian exports, complemented by decisive actions from the Reserve Bank of India (RBI).
The day saw robust performance across benchmark indices, mid- and small-cap segments, and sector-specific counters. Analysts suggest this momentum, while celebratory, should be navigated carefully due to lingering global uncertainties.
A Snapshot of the Surge
•BSE Sensex: Jumped 1,310 points, settling at 75,157, marking a gain of over 1.75% by the session’s end.
• Nifty 50: ended the session close to 22,830, marking an increase of approximately 430 points, equivalent to a gain of about 1.9% for the day.
•Banking Index: The financial index climbed by more than 750 points, signaling aggressive buying in the banking space.
•Mid and Small-Caps: Broader markets joined the rally, with the BSE Small-Cap index advancing about 3%, and the Mid-Cap index appreciating approximately 1.8%.
What Sparked the Uptrend?
1. Temporary Relief from U.S. Trade Penalties
The primary force behind the surge was the announcement from Washington, D.C., where U.S. President Donald Trump unveiled a three-month suspension of a proposed 26% tariff on Indian goods. This development gives Indian exporters a vital window to adapt or renegotiate and has been interpreted as a diplomatic breakthrough.
According to Avinash Gorakshkar, an equity strategist at Profitmart Securities, “The temporary tariff pause has shifted sentiment positively. Investors seem to be anticipating a possible improvement in trade relations between India and the U.S.”
The fact that China was excluded from this moratorium also bolstered India’s relative position in the global trade matrix, prompting foreign funds to revisit their exposure to Indian equities.
2. RBI’s Accommodative Shift Spurs Optimism
The central bank’s recent decision to lower its benchmark repo rate by 25 basis points played a crucial role in driving momentum. This decision aimed at fostering economic momentum has been received positively by both businesses and investors.
The RBI’s policy tone remained supportive of growth, with inflation projections anchored at 4% for the next fiscal, offering comfort that price levels remain under check despite external shocks.
This dovish posture indicates a likelihood of continued easy monetary conditions, which has boosted investor appetite, particularly in rate-sensitive sectors like banking, auto, and real estate.
3. Expectation of Strong Quarterly Results
Investor enthusiasm is also being driven by anticipations of a positive earnings season. The March quarter (Q4 FY2025) is expected to reflect better-than-expected performance from several sectors, especially banking and industrials, due to increased loan disbursals and steady consumption.
Analysts believe the earnings momentum, supported by falling interest costs and recovering demand, will offer strong tailwinds for the equity markets through the upcoming weeks.
4. Foreign Investment Flow Rebalancing
The changing geopolitical landscape and reassessment of supply chains have encouraged institutional investors to diversify away from China and toward emerging markets like India. The phrase “Sell China, Buy India” is increasingly being echoed across global investment circles.
India’s democratic governance, regulatory transparency, and improving manufacturing ecosystem have become attractive, particularly as the world seeks stable alternatives for high-tech and manufacturing inputs.
5. Market Technicals and Short-Covering Activity
The upward thrust also had a technical component. With many traders holding bearish positions after a weak session earlier in the week, Friday’s strong opening prompted swift short-covering, which intensified gains. As prices moved higher, more traders were forced to square off their positions, pushing the indices even further.
Sector Performance Overview
• Banking and Finance: Led the pack, driven by strong growth expectations, especially after the rate cut announcement. Lenders are expected to see better margins and higher loan growth.
• Metals and Commodities: Benefited from reduced global tariff concerns and signs of revived demand from key markets.
• Technology: IT firms also attracted buying interest, aided by favorable exchange rates and expectations of robust demand for services globally.
Investor Guidance: What’s Next?
Despite the euphoria, financial advisors recommend keeping a balanced view. The current rally reflects hope—but it’s partly speculative, hinging on continued global cooperation and domestic resilience. Any adverse development on the trade front or reversal in interest rate expectations could challenge this optimism.
Sugandha Sachdeva, founder of SS Wealth Street, cautions: “While momentum may carry forward, resistance is likely in the 22,900–23,100 range for the Nifty. Investors should keep stop-losses tight and stay informed.”
The image added is for representation purposes only
