Indian Markets Rally As Fed Rate Hike Fears Ease, Smallcaps Steal The Show With A Fresh Lifetime High

Indian stock markets experienced a rally on Friday as fears of a near-term US Federal Reserve rate hike diminished, boosting investor confidence. However, the upward momentum was tempered by profit-taking at elevated levels and ongoing geopolitical tensions in the Middle East. The Sensex climbed 362.57 points, or 0.48%, to close at 76,515.43, while the Nifty 50 gained 24.25 points, or 0.10%, to settle at 23,897.70.

The Sensex reached an intraday peak of 76,883.14, while the Nifty momentarily touched the 24,000 mark before relinquishing some of those gains by the end of the trading day. The broader market remained notably active, with smallcap indices achieving record highs driven by stock-specific buying.

Analysts attributed the relief rally to easing concerns over an imminent US Fed rate hike. However, they noted that gains were restrained by profit-taking at higher levels and persistent geopolitical uncertainties in the region. Metal stocks led the market's gains, with the Nifty Metal surging more than 1%, followed by financial services excluding banks.

Conversely, the Nifty IT declined by 0.47%, while the Nifty Pharma and Nifty Healthcare sectors slipped by 0.68% and 0.87%, respectively. Market volatility moderated considerably, with the India VIX falling 6.24% to 10.63.

Investor sentiment improved as expectations of softer US core inflation in August strengthened hopes that the Federal Reserve might pause further rate hikes. Additionally, the Indian rupee appreciated to 94.48 against the US dollar, buoyed by new foreign currency non-resident (FCNR) deposit inflows and enhanced dollar liquidity. Ongoing robust corporate earnings, steady economic growth, and strong domestic demand continued to bolster investor confidence across the broader market.