Indian equities extended their rebound for a second straight session, aided by easing volatility and selective sectoral buying, though investors remained cautious amid lingering macro concerns.

A key supportive factor was the sharp drop in the volatility index, India VIX, which fell 8.4%% to slip below the 20 mark. The cooling volatility - particularly around the derivatives expiry - helped accelerate time decay in options and lowered risk premiums, providing stability to the markets after recent turbulence.

Continuing its gaining streak for the second straight session, the Nifty50 rose 0.74%, or 172 points, to settle at 23,581.15, while the Sensex gained 0.75%, or 568 points, to close at 76,070.84. In sync with benchmark indices, the broader markets also ended higher, with the Nifty MidCap and the Nifty SmallCap indices adding 1.07% and 0.78%, respectively.

In two trading days, the Sensex has recovered 1,507 points and the Nifty has added 430 points. This rebound has boosted investor wealth by nearly ₹4 lakh crore, with the total market capitalisation of BSE-listed firms climbing to ₹433.32 lakh crore.

The Indian rupee extended its gains for a second consecutive session, appreciating by 5 paise to settle at 92.37 against the US dollar. The domestic currency was supported by a rebound in equity markets and strength in other Asian currencies.

Auto, metals stock lead rally

Gains in frontline indices were led by auto, metals and select heavyweights, with Eternal emerging as the top gainer, rising 5.7%, followed by Tata Steel (4.4%) and Mahindra & Mahindra (3.1%). Defence and infrastructure names such as Bharat Electronics and Larsen & Toubro also supported the upside, alongside strength in Bharti Airtel and Maruti Suzuki India.

Financials contributed to the gains, with ICICI Bank, Axis Bank and Kotak Mahindra Bank ending in the green, while index heavyweight HDFC Bank saw modest gains. Other notable contributors included Trent and InterGlobe Aviation (IndiGo).

On the flip side, IT and select consumption stocks weighed on the market. Infosys declined 1.4%, while Bajaj Finance, ITC and Tata Consultancy Services also ended lower. Weakness was also seen in HCL Technologies and Adani Ports and Special Economic Zone.

On the sectoral front, gains were led by auto stocks, with the Nifty Auto index advancing around 2%. The move is largely seen as a technical recovery following the sharp correction over the past month, when rising input costs, higher fuel prices and geopolitical tensions had weighed on sentiment. Stock-specific momentum in Mahindra & Mahindra also lent support, backed by steady rural demand and improving prospects in the electric vehicle space.

In contrast, the Nifty IT index remained under pressure, falling over 2% and trading near multi-year lows. Concerns over a delay in rate cuts and continued macroeconomic uncertainty in key markets such as the US are clouding the earnings outlook for IT companies, despite favourable currency movements.

Will this market rally sustain?

The recent rebound in Indian equities has raised hopes of a near-term recovery, but market participants remain divided on whether the rally can sustain amid persistent global uncertainties.

According to Vinod Nair, the ongoing upmove is largely driven by bargain hunting, particularly in beaten-down cyclical sectors such as autos, metals and financials. While these segments have rebounded after sharp corrections, he cautioned that it may be too early to call this a durable reversal, given the continued geopolitical risks. However, from a longer-term perspective, he believes the recent correction has made valuations more reasonable, making gradual deployment of funds attractive.

Echoing a cautious stance, Ponmudi R highlighted that the Middle East conflict remains a key overhang, with tensions around the Strait of Hormuz keeping crude prices elevated. He noted that a combination of high oil prices, a weakening rupee and persistent foreign institutional investor (FII) outflows continues to pressure markets. That said, steady domestic institutional investor (DII) inflows are providing a cushion, preventing sharper downside. He expects markets to remain range-bound in the near term unless there is clarity on geopolitical developments or a meaningful cooling in crude prices.

From a technical standpoint, Hariprasad K described the current phase as a “tactical recovery” rather than a full-fledged trend reversal. While indicators such as RSI are showing early signs of stabilisation, broader uncertainty and resistance at higher levels suggest that gains could remain gradual and selective.

Brokerage Angel One also sees scope for a short-term bounce, supported by oversold conditions and recent bullish chart patterns. However, it cautioned that key resistance levels around 23,850–24,000 on the Nifty could cap further upside, while support is seen near 23,350 and 23,000.

Similarly, Nandish Shah pointed to a potential continuation of the pullback rally, with 23,700 acting as immediate resistance. A breakout above this level could push the index higher, while a fall below 23,300 may signal renewed weakness.

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