Top five reasons why Sensex rallied over 600 points on Thursday

Indian equity markets opened gap-up on Thursday after US President Donald Trump said that Washington did not necessarily have to respond to Iranian attacks at American military basis in Iraq. Tempering days of angry rhetoric, Trump suggested Iran was "standing down" while Tehran offered no immediate signal it would retaliate further over a January 3 US strike that killed one of its senior military commander Qassem Soleimani.

Taking cues from this temporary calm in US-Iran tensions, the S&P BSE Sensex surged over 600 points, or 1.5 per cent, to 41,440 levels on Thursday. The broader Nifty50 index reclaimed the psychological level of 12,200, up 184 points, or 1.5 per cent. The benchmark indices, which endured volatile sessions throughout this week -- continued the uptick with little hiccups as the volatility index India VIX plunged 10 per cent.

All the Nifty sectoral indices, except Nifty IT, were trading in the green. Nifty Bank index, up over 2 per cent, reclaimed the 32,000 level. Nifty Private Bank, Nifty Auto, and Nifty Realty indexes also gained over 2 per cent each.

Broader markets also participated in the relief rally. The S&P BSE MidCap index rallied 210 points, or 1.5 per cent, and the S&P BSE SmallCap index hit a six-month high after gaining 221 points, or 1.6 per cent.

Here's a look at the key factors that lifted markets on Thursday -

US-Iran tensions recede: Global markets went into a tailspin after Soleimani was killed in a US strike as investors worried over possible escalation in regional conflict in the Middle East. While Iran responded by attacking military bases housing US troops in Iraq, US President Donald Trump said the missile strikes had not harmed any US troops stationed there and that damage was minimal. Trump also said that Iran appeared to be "standing down" and announced fresh sanctions on Tehran but stopped short of any further military escalation. This slight cool-off in US-Iran tensions gave global markets some space for a relief rally.

Oil prices fall: Oil futures had soared in response to the killing of Soleimani and the US-Iran tension thereafter. Global Brent crude surged as much as $71.75 -- its highest since mid-September. However, as the US and Iran looked to defuse a potential Middle East crisis, oil prices plunged more than 4 per cent on Thursday. Brent futures fell $2.83, or 4.2 per cent, to settle at $65.44 a barrel, their lowest close since December 16.  US West Texas Intermediate (WTI) crude fell $3.09, or 4.9 per cent, to settle at $59.61 per barrel, its lowest close since December 12. 

The dip in oil prices came as a relief for Indian investors who worried that the hike in oil prices would increase India’s crude oil import bill at a time when there are lingering concerns about the government's fiscal slippage. Fiscal deficit of the Union government rose to 114.8 per cent of the target in the first eight months of the fiscal year, the data released by the Controller General of Accounts showed. Hence, the fall in oil prices came as a relief. 

Rupee strengthens: The Indian rupee advanced 22 paise to 71.48 per US dollar in opening trade on Thursday. At the interbank foreign exchange market, the rupee opened strong at 71.44 against the greenback. The domestic unit had settled at 71.70 per dollar on Wednesday. The strong Rupee, which had breached the level of $72 at one point, also helped firm up investor sentiment..

Expectations from Budget: A 5 per cent growth forecast for the current financial year -- the slowest pace in 11 years -- has investors hoping the finance minister would opt for extra fiscal stimulus when she presents the annual budget next month. According to a Reuters report, the government is expected to announce tax concessions for individuals and increase spending on infrastructure after cutting corporate tax rates last year. Finance Minister Nirmala Sitharaman has already unveiled a plan to invest Rs 102 trillion in infrastructure over the next five years in a bid to make India a $5 trillion economy by 2025.

Corporate earnings: With the onset of the earnings season, investors are betting on the December quarter results to benefit from the cut in corporate tax. According to a Business Standard report, analysts expect an improvement in net profit growth, thanks to the gains from the cut in corporate tax and a better showing by retail lenders.