D-Street Ignites: Indian Equities Soar to 9-Month High as Mideast Tensions Ease

India's equity markets roared to a nine-month high on Thursday, propelled by a powerful surge in banking stocks. Investor confidence was reignited as tensions in the West Asia (Middle East) appeared to cool, triggering a wave of short covering ahead of the June derivatives contract expiry. The NSE Nifty climbed 304.25 points, or 1.2%, to close at 25,549, while the BSE Sensex surged 1,000.36 points, or 1.2%, ending the day at 83,755.87. Both indices marked their highest closing levels since a sharp rally last October.

However, the late-day rally showed signs of softening as concerns about potential pressure on corporate profits and elevated share valuations began to emerge.

"The Nifty's breakout from a 30-day consolidation signals strong momentum driven by easing geopolitical tensions, falling crude prices, and sustained domestic institutional buying," explained Chandan Taparia, head of technical and derivatives research at Motilal Oswal Financial Services. "We saw short covering from traders, which triggered the sharp up move today."

Fear Gauge Retreats, Bank Stocks Lead the Charge

The "fear gauge" of the market, the Nifty's Volatility Index (VIX), tumbled 2.9% to 12.6 levels, indicating that traders perceive reduced near-term risks. The index has seen a significant decline of over 30% in the past month.

Leading the charge were banking shares, with the Bank Nifty index achieving new record highs.

Further bolstering optimism was the news that Israel and Iran had announced a ceasefire after a 12-day conflict. Despite this, oil prices remained somewhat elevated, with Brent crude futures rising 0.7% to $68.16 a barrel, as concerns lingered about the permanency of the cessation of hostilities.

Adding to the positive sentiment, the dollar index dropped to a three-year low on Thursday. A weaker US currency typically funnels investment into overseas markets, benefiting regions with appreciating currencies.

Across Asia, market performance was mixed. Japan's Nikkei rallied 1.65%, and Taiwan advanced 0.3%. In contrast, China declined 0.2%, Hong Kong fell 0.6%, and South Korea dropped 0.9%. The pan-European index Stoxx 600 was trading flat at the time of reporting.

At home, Taparia believes the current bullish momentum could propel the Nifty to 25,750, potentially even surpassing its current all-time high of 26,277, which was achieved on September 26.

Siddarth Bhamre, head of institutional research at Asit C Mehta, attributed the market's upward trajectory to an uninterrupted flow of liquidity. "Markets have been rising despite ongoing uncertainty, as negative news is quickly priced in, and steady liquidity and flows continue to drive gains," Bhamre noted.

Large-Caps Emerge as Safe Havens

Foreign portfolio investors (FPIs) were significant net buyers on Thursday, scooping up shares worth ₹12,594 crore. Domestic institutions (DIIs), however, were net sellers to the tune of ₹195 crore. For June so far, DIIs have been net buyers of shares worth ₹69,765.4 crore, while FPIs have bought shares worth ₹6,923.5 crore.

The broader market underperformed the large-cap segment, with the Nifty Midcap 150 gaining 0.5% and the Nifty Small-cap 250 rising 0.3%. Out of the 4,153 stocks traded on the BSE, 2,043 advanced, while 1,961 declined.

Bhamre advised caution and recommended sticking to large-cap stocks. "Investors must stay invested in reasonably valued large-cap stocks, with a focus on banking, life insurance, and select cement companies, which offer a combination of growth and reasonable valuation," he concluded.