After three days of intense military strikes, India and Pakistan reached a ceasefire agreement on May 10, which pushed the Indian equity benchmarks BSE Sensex and NSE Nifty 3% higher. The benchmark indices registered their highest-ever single-day gain in absolute terms as bulls took full control of Dalal Street on Monday. However, the market dynamics took a 360-degree turn today, with the bear sentiment tightening its grip on the Indian equity markets. 

The 30-share Sensex declined as much as 1,288 points, or 1.56%, to hit an intraday low of 81,141.53, undermining firm cues from global equity markets as investors booked some profit at higher levels. Similarly, the Nifty50 tumbled 336 points, 1.35%, to slip to day’s low of 24,588.35. However, the broader market continued to hold ground, with the BSE midcap and smallcap indices rising by 0.2% and 0.7%, respectively.

The caution prevailed in the market as traders turned jittery ahead of the U.S. consumer price index (CPI) and retail sales data set to be released tonight, which are key for the Federal Reserve to decide monetary policy.

As per the BSE data, the market breadth, indicating the overall strength, was positive, with 2,392 stocks out of 4,022 traded shares trading in green zone. On the other hand, 1,474 shares declined and 156 were unchanged. As many as 264 stocks hit their upper circuits, while 168 shares touched to their lower circuit limits.  

The volatility index, India VIX rose marginally by 0.6% to 18.5 level, indicating overall market resilience and stability.

On the BSE Sensex pack, only four of 30 stocks were trading higher, with Infosys, Eternal (Zomato), Power Grid Corp, HCLTech, TCS, and Bharti Airtel topping losers’ chart. On the other hand, Adani Ports, Bajaj Finance, Tech Mahindra, and Sun Pharma were trading higher with marginal gains.

On the sectoral front, IT, FMCG, Financial Services, and bank indices were floating in negative terrain, falling up to 1%, while Defence, PSU Bank, Pharma, Healthcare, and Media sectors saw buying momentum.

The Nifty India Defence index surged over 4%, led by Bharat Dynamics, Zen Technologies, MTAR Technologies, BEML, and Hindustan Aeronautics (HAL).

Market rally triggered by short-covering

After the sharp surge in the market yesterday, mainly in response to the ceasefire, it is time to take stock and try to understand the likely direction of the market, going forward.

The market surge in the previous session was triggered by short-covering and High Net-Worth Individual (HNI) plus retail buying, says VK Vijayakumar, Chief Investment Strategist, Geojit Investments. He added that the sharp 916-point surge in Nifty was not caused by institutional activity as the combined FII and DII buying yesterday was only ₹2,694 crore.

“This implies that institutional activity is likely to remain subdued in the coming days which may constrain the continuation of the rally,” he said.

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