3 reasons why the Sensex surged nearly 1,300 points on Friday, July 26

Stock market highlights today, July 26: The Nifty50 also saw a robust gain of 455 points, hitting an record high of 24,861 intraday

Benchmarks rally: Benchmark indices Sensex and Nifty 50 witnessed a strong rally on Friday, July 26.  The Sensex surged 1,287 points, reaching an intraday high of 81,427.2. The Nifty50 also saw a robust gain of 455 points, hitting an intraday high of 24,861.

This was also the Nifty50's fresh record high. It surpassed the previous high of 24,855. The BSE Sensex, meanwhile, has a record high of 81,587.76, touched on July 19, 2024.

The BSE Sensex, eventually, settled with gains of 1.62 per cent or 1,293 points at 81,332 levels, while the NSE's Nifty50 closed 1.76 per cent or 429 points at 24,835 levels. CHECK MARKET WRAP HERE

 

On the BSE Sensex, barring Nestle India, all other the stock settled in the green. Top gainers included Bharti Airtel, Tata Steel, JSW Steel, and Adani Ports.

Broader markets were also active, with the BSE MidCap index climbing 1.91 per cent and the SmallCap index rising by 1.14 per cent.

"The unique feature of the ongoing bull market in India is its ability to climb all walls of worry. The market dismissed all concerns relating to elections, the Budget and the correction in the mother market of the US,” said V K Vijayakumar, chief investment strategist at Geojit Financial Services.

That said, here are the top main reasons why Sensex rallied today:

Recovery from Union Budget-induced anxiety
 

Investors had been booking profit in large-cap stocks, and preferred to stay on the sidelines ahead of the Union Budget presentation on July 23. Between July 18 and July 25, benchmark indices -- BSE Sensex and the Nifty50 -- slipped over a per cent each. Specifically, the BSE Sensex shed around 1,300 points in these five sessions.

With Budget-related anxiety behind investors, coupled with the expiry of July F&O series, they seem to be taking fresh positions in the market.

The rollovers to August series have taken place with market-wide open interest (OI) at historic high. According to a report by Nuvama Alternative & Quantitative Research, the overall market-wide futures OI at the start of August series stood at Rs 4.51 lakh crore (historic high) as compared to Rs 4.32 lakh crore at the start of July series. Market-wide rollovers were at 89 per cent, higher than the 3-month average of 88 per cent. READ MORE 
 

Rally in IT, Metal stocks 
 

The Nifty IT index surged by 2.54 per cent intraday to reach a new record high of 41,073.65, buoyed by expectations of a Federal Reserve rate cut following stronger-than-expected US GDP data. This optimism, combined with positive results from Indian IT companies, spurred the rally.

"Indian IT results have been mixed regarding revenue growth, but there's a positive trend with increased spending on discretionary projects and key sectors like BFSI (Banking, Financial Services, and Insurance). The BFSI sector, a major revenue driver for large IT firms, has shown signs of recovery after several quarters of slow growth. The optimistic outlook for BFSI, supported by commentary from major global banks, enhances confidence in this vertical's growth. However, US bank data on tech spending remains unchanged," noted Meeta Shetty, Fund Manager at Tata Asset Management.

Among the IT stocks, Mphasis led with a nearly 7 per cent gain, followed by Wipro, LTIMindtree, and Infosys, which saw increases in the range of 2-4 per cent. 

From a valuation perspective, Shetty pointed out that the IT sector's valuation has risen to approximately 24x FY26E EPS, surpassing its long-term average of around 18x. This valuation increase reflects anticipation of US interest rate cuts and a lower-than-usual sector ownership by Foreign Institutional Investors (FIIs) and Domestic Institutional Investors (DIIs).

In parallel, the Nifty Metal index climbed by 3.23 per cent to an intraday high of 9,443.65. This boost came after the People's Bank of China unexpectedly reduced its one-year medium-term policy loan rate by 20 basis points to 2.3 per cent.

Key metal stocks such as Adani Enterprises, Jindal Steel, and JSW Steel each posted gains of up to 4 per cent.

Technicals
 

Anand James, Chief Market Strategist at Geojit Financial Services, highlighted that a Marubozu candle on the daily timeframe indicates strength in the recent reversal. With optimism around the August F&O expiry, the index may target levels between 24,550 and 24,600. 

However, the weekly candle formation still suggests potential weakness. Traders are advised to initially consider long positions aiming for 24,550-24,600, but exercise caution near these upper levels. Fresh long positions beyond 24,600 will depend on the index’s ability to sustain gains.

On the downside, immediate support is near 24,350. A breach of this level could lead to a drop to 24,200. A move below 24,000 might open up further downside risks, with the next support zone between 23,055 and 23,000.