Dalal Street defied a global sell-off on Thursday, with the Sensex and Nifty extending their gains through early trade even as a hotter-than-expected US inflation reading rattled Wall Street and triggered a sharp fall in Asian markets.
Information technology (IT) stocks led the Indian rally, supported by recent earnings optimism, while investors weighed whether the global correction in artificial intelligence (AI) stocks could redirect foreign money towards Indian equities.
At around 10:37 am, the BSE Sensex was trading at 73,794.23, up 1,012.34 points or 1.39%. The NSE Nifty 50 climbed 295.55 points, or 1.31%, to 22,918.25. The Sensex had touched an intraday high of 73,798.59, while the Nifty hit 22,921.20.
The gains stood in sharp contrast to overseas markets. On Wednesday, the tech-heavy Nasdaq Composite fell 1.88% to 26,692.87, while the S&P 500 declined 1.11% to 7,718.94. The Dow Jones Industrial Average slipped 0.09% to 51,621.48. The losses followed US inflation data that raised concerns about the Federal Reserve potentially tightening monetary policy again.
The sell-off spread across Asia on Thursday. , while Japan’s Nikkei 225 fell more than 4% in early trade, as technology and semiconductor stocks came under heavy selling pressure.
The market’s resilience comes after two sharply contrasting sessions.
On Tuesday, the Sensex and Nifty rallied around 1.5-1.6%, driven by information technology stocks and hopes of a possible review of long-term capital gains (LTCG) tax and securities transaction tax (STT). On Wednesday, both benchmarks reversed course, with the Sensex falling 0.34% and the Nifty declining 0.44% as investors booked profits amid higher crude oil prices and foreign investor selling.
Thursday’s rebound suggests investors are finding support in domestic earnings prospects and the relative strength of Indian IT stocks, even as global risk appetite weakens.
The biggest support came from technology shares. The Nifty IT index climbed 2.60%, with Tech Mahindra rising 3.69%, Infosys gaining 3.15%, TCS advancing 2.98% and HCLTech adding 2.66%. Bharti Airtel rose 3.36%, while ICICI Bank and Axis Bank gained 1.72% and 1.69%, respectively.
Other heavyweight stocks, including HDFC Bank, Reliance Industries, ITC and Mahindra & Mahindra, also traded higher, helping lift the benchmark indices.
The rally was not broad-based across all segments. The Nifty 100 rose 0.67%, the Nifty 200 gained 0.53% and the Nifty 500 advanced 0.38%. However, the Nifty Smallcap 100 fell 0.87%, while the Nifty Midcap 100 slipped 0.01%. The Nifty Midcap 50 was up 0.10%.
One possible explanation for India’s relative strength is the correction in AI-linked stocks overseas. Foreign institutional investors have been selling Indian equities while allocating money to technology and AI-related companies in global markets. If the global tech sell-off prompts investors to reassess those positions, some capital could return to Indian equities.
Dr V K Vijayakumar, Chief Investment Strategist at Geojit Investments Limited, said the correction in AI stocks could prove positive for the Indian market.
“FIIs who have been selling Indian stocks and buying AI stocks will halt this trend and under favourable conditions might even reverse it,” he said.
However, a fall in global technology shares does not automatically mean foreign investors will buy Indian stocks. The direction of flows will also depend on valuations, earnings prospects, currency movements and global interest rates. A correction in AI stocks could create an opportunity for portfolio rebalancing, but any reversal in foreign flows remains uncertain.
For now, Indian IT stocks are drawing support from company-specific developments. HCLTech’s better-than-expected quarterly profit has helped improve sentiment towards the sector, while investors are looking for further evidence that earnings growth can sustain valuations.
Vijayakumar said the strength in IT stocks following HCLTech’s results and expectations of good second-quarter earnings from financial companies could help keep the market resilient.
The global sell-off began after US consumer price inflation accelerated to 3.7% in September from 3.4% in August, exceeding economists’ expectations of 3.6%. The hotter-than-expected reading revived concerns that the Federal Reserve may need to keep interest rates higher for longer or consider another rate hike.
Higher interest rates generally increase borrowing costs and can weigh on equity valuations, particularly for technology companies whose valuations depend heavily on expectations of future earnings. The inflation reading also raised concerns about the cost of financing AI infrastructure and the sustainability of high valuations across the sector.
The Nasdaq’s 1.88% decline reflected the pressure on technology shares, while the Philadelphia Semiconductor Index also fell sharply. In Asia, semiconductor-heavy markets bore the brunt of the sell-off, with South Korean and Japanese technology stocks among the biggest losers.
Vijayakumar said the inflation print had increased the possibility of another Federal Reserve rate hike in October, triggering selling in US markets and spreading uncertainty to Asia.
The key risk for India is that higher US yields could strengthen the appeal of dollar assets, putting pressure on emerging-market currencies and foreign portfolio flows. That means the domestic rally will need support from earnings and investor demand to withstand a prolonged period of global uncertainty.
Expectations of a possible review of LTCG tax and STT have provided another source of support for Indian equities. Finance Minister Nirmala Sitharaman said on Tuesday that the views on these taxes, including whether different asset classes should be taxed similarly.
The comments revived hopes of a possible change in the equity tax structure ahead of Budget 2027-28, although Sitharaman did not commit to reducing or abolishing either tax.
Vijayakumar said indications that the Finance Ministry might reconsider LTCG taxation in the coming Budget had the potential to keep the market resilient.
The prospect of tax relief could improve investor sentiment, particularly at a time when foreign outflows and global market volatility remain concerns. However, the government has yet to announce any policy change, and investors will also be watching corporate earnings, crude oil prices and currency movements.
The market’s ability to sustain Thursday’s gains will depend on whether domestic earnings optimism can offset global monetary-policy concerns and continued foreign investor selling.
The Nifty IT index’s strength is providing a clear source of support, while expectations of good second-quarter earnings from financial companies could help other heavyweight stocks. A potential reassessment of global AI investments could also alter portfolio allocations, although a reversal in foreign flows is far from certain.
At the same time, the US inflation reading has revived concerns about the Federal Reserve’s rate outlook. If markets begin pricing in tighter US monetary policy, the resulting pressure on global equities and emerging-market flows could return.
For now, Indian equities are moving against the broader global trend, supported by IT stocks, domestic earnings expectations and hopes of a possible tax review. Whether this divergence lasts will depend on how these domestic factors hold up against the risks coming from overseas.
(Disclaimer: The views, opinions, recommendations, and suggestions expressed by experts/brokerages in this article are their own and do not reflect the views of the India Today Group. It is advisable to consult a qualified broker or financial advisor before making any actual investment or trading choices.)