Markets surge to one-month high; Focus shifts to RBI policy decision | Stock Market News

Stock markets celebrated the Donald Trump administration’s pause on tariff hikes on Canada and Mexico, adding nearly ₹6 trillion of wealth as investors bet that a full-fledged trade war is unlikely.

In the best day for the stock markets in a month, the Nifty ended up 1.6% at 23,739.25, while the Sensex closed 1.8% higher at 78,583.81. It was a sea of green across sectors—except for Nifty FMCG, which saw a modest 0.3% dip. During the day, the benchmark indices traded as much as 2% higher.

On Monday, the US decided to suspend planned tariffs of 25% on Canada and Mexico for a month after both agreed to block drugs and border-crossing. Investors interpreted this as a signal that the tariff threats were more of a tactic to force the neighbours to the negotiating table, and not intended to spark a bruising trade war.

Foreign portfolio investors (FPIs) who have been on a selling spree since October bought ₹808 crore worth of shares on Tuesday, while domestic institutions such as mutual funds and insurance companies sold ₹431 crore. The session also witnessed some sector rotation, with investors snapping up underperforming large-caps.

The Nifty Smallcap 250 rose 1.1% to 15,855.95 points, while the Nifty Midcap 100 gained 1.6% to 53,813.80 points.

Also read | FPIs double down on Nifty option sales ahead of MPC meeting outcome

The rally was led by HDFC Bank, Reliance Industries, Larsen & Toubro, Infosys, ICICI Bank, and Kotak Mahindra Bank, while consumption stocks like Britannia Industries, Hindustan Unilever, Nestlé and Trent were the biggest laggards of the day.

With the immediate tariff threat receding, markets are now looking for direction from the Reserve Bank of India’s (RBI) Monetary Policy Committee (MPC) which is meeting from Wednesday to Friday.

“We expect RBI to improve durable liquidity and lower repo rates as growth is soft and the budget has delivered on fiscal prudence,” said Nilesh Shah, managing director of Kotak Mahindra Asset Management Co. The tax rebates are likely to be spent on discretionary items like travel, entertainment, education and durables rather than on staples like soaps and detergents, he added.

On Monday, finance secretary Tuhin Kanta Pandey said that fiscal and monetary policies need to work in tandem, not at cross-purposes, “because a lot more benefit will come also with monetary easing if we are able to maintain inflation under control.” The RBI will also consider factors like inflation and currency depreciation while deciding on interest rates, he added.

The RBI may reduce the repo rate by 25 basis points on Friday, the first easing since the pandemic, a Bloomberg survey of economists showed. A rate cut, however, will put more pressure on the currency after it hit successive lows in recent months.

Also read | Short circuit: Foreign investors likely to press the sell button this week

Stocks across Asia-Pacific closed mostly up, with Hong Kong’s Hang Seng Index rising 2.83%, Japan’s Nikkei 225 0.72% and South Korea’s Kospi 1.13%. In mid-day European trading, France’s CAC 40 rose 0.3%, while Germany’s DAX gained 0.2%. Britain’s FTSE 100 was down 0.2%.

A. Balasubramanian, managing director & CEO of Aditya Birla Sun Life AMC, said the budget has created the perfect setup for the RBI to go for an outsized 50 bps rate cut, even as he expects the rupee to weaken to ₹89. He also expects foreign investor outflows to reverse soon, with FIIs likely turning buyers again. “The Delhi election results are coming just a day after the RBI MPC decision, and that will add legs to the upmove,” he noted.

Balasubramanian is optimistic about the market’s trajectory, expecting a solid rebound followed by a phase of consolidation.

Intermittent corrections offer a good opportunity to invest, especially in mid- and small-cap companies, said Vikas Khemani, founder of Carnelian Asset Management and Advisors. As for any news on tariffs, he expects only a short-term market reaction and doesn’t see it causing any major disruptions. Saurabh Patwa, head of research & portfolio manager at Quest Investment Advisors agreed that periodic market corrections should be seen as opportunities, “making strong businesses available at more reasonable valuations”.

Also read | Excessive rupee volatility may impact trade, but remains a free-float currency: Finance secretary Tuhin Kanta Pandey

The central bank on 27 January announced three major measures to add a total of ₹1.5 trillion to the market – ₹60,000 crore in open market operations (OMOs), ₹50,000 crore through a variable repo rate auction of long-dated securities, and ₹40,000 crore in a buy/sell swap auction. In a report dated 27 January, Nomura Securities said that the quantum and timeline of the RBI action were above its expectations.

“We believe the RBI’s liquidity easing confirms that a regime shift is under way and a precursor to rate cuts,” the Nomura report read. “We reiterate our view of a 25bps repo rate cut on 7 February, and 100bps in total cuts this year.”

Some experts have warned that the market could remain volatile, given Trump’s unpredictable ways. Kotak Institutional Equities said, “We do not rule out global risk-off sentiment due to a sharp increase in uncertainty in the global economic outlook. Valuations are rich and earnings are muted to provide much support for the Indian market.” The brokerage noted that the positives from the Union budget and the challenges of the December quarter earnings season could be overshadowed by the fallout from the US tariff action.

And read | FPIs are betting on these stocks despite the market downturn