Indian stock market: Sensex, Nifty 50 rise despite HMPV virus fears. Will the rally sustain?

Indian stock market benchmarks—the Sensex and the Nifty 50—recorded decent gains on Tuesday, January 7, ending their two-day losing streak. 

The Sensex closed 234 points, or 0.30 per cent, higher at 78,199.11, while the Nifty 50 ended with a gain of 92 points, or 0.39 per cent, at 23,707.90. The rally was stronger in the mid and small-cap segments as the BSE Midcap index climbed 0.77 per cent and Smallcap index rose 1.74 per cent.

The overall market capitalisation of the BSE-listed firms rose to nearly ₹442 lakh crore from about ₹439 lakh crore, making investors richer by about ₹3 lakh crore in a single session.

In the last two sessions, the Sensex and the Nifty 50 had fallen over 2 per cent each, primarily because of sustained selling by foreign institutional investors amid a sustained rise in the US bond yields and rising cases of the HMPV virus.

Market sentiment received a fresh blow after concerns emerged over the spread of the HMPV virus, reminding the early days of the COVID-19 pandemic.

As Mint reported, Indian authorities confirmed the detection of several human metapneumovirus (HMPV) cases on Monday amid growing concern about the respiratory virus. Two cases were reported from Bengaluru in Karnataka, while a third tested positive after being hospitalised in Gujarat. The development comes even as China and other countries battle a major viral fever and pneumonia outbreak.

Track Live Updates of HMPV Cases Here

While the spread of HMPV cases remains in the focus of investors, the Indian stock market witnessed a relief rally on Tuesday, with the Sensex rising nearly 500 points during the session.

What drove the Indian stock market higher?

The market witnessed buying at lower levels as reports of the virus not being as fatal as COVID-19 emerged. The government has clarified that people should take precautions but not be highly worried about the virus, as the infection is a seasonal disease.

“Health experts have clarified that HMPV is not a new virus. It was first identified in 2001, and it has been circulating in the entire world for many years. HMPV spreads through the air through respiration. This can affect persons of all age groups. The virus spreads more during the winter and the early spring months,” Health Minister JP Nadda said on Monday.

Experts believe the sharp fall of over 1 per cent in the previous session was an overreaction to the HMPV virus cases.

“The 1.6 per cent cut in the Nifty 50 yesterday appears to be an overreaction to the HMPV virus concerns. Clarification by the government that there is no room for undue concern from the virus, which is not new, can facilitate a rebound in the market, led by momentum stocks,” said V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services.

Investors are using the dip to buy fundamentally strong and beaten-down stocks in many segments.

Largely positive global cues also influenced sentiment back home. Several major Asian markets saw healthy buying on Tuesday amid reports that the incoming US President-elect, Donald Trump, could adopt a less aggressive tariff stance.

On Monday, the Washington Post reported that Trump’s aides were exploring tariff plans covering only certain sectors considered critical to national or economic security. Trump, however, later declined this report.

Will the rally sustain?

At this point, it seems highly unlikely that the market will sustain the rally. Significant uncertainty surrounds how India Inc.’s Q3 earnings will unfold, the trade policies Trump will announce after assuming office on January 20, and the rate at which virus cases will rise.

“It doesn’t look like it will sustain as the global macros are not favourable. Also, if we consider our currency, it is weakening on a daily basis. This is compelling FIIs to reduce their exposure, and we think it will continue at least until America’s President takes the oath. Volatility will remain with a negative bias,” said Shrikant Chouhan, the head of equity research at Kotak Securities.

“I don’t think the market will sustain the current gains. The business updates of some banking heavyweights, such as HDFC Bank and IndusInd Bank, were lower than expectations. This signals the Q3 earnings seasons could come softer. There are also risks of yen-carry trade if Japan’s central bank increases interest rates,” said Prashanth Tapse, Senior Vice President of Research at Mehta Equities.

Tapse believes the domestic market will remain volatile in January due to Q3 earnings, the Trump factor and the upcoming Union Budget 2025. The news flow surrounding virus cases will also influence the sentiment of retail investors and HNIs.

“Investors should wait and watch for Q3 earnings. If the December quarter results turn out to be better than that of the last two quarters, investors may consider buying quality stocks at that point,” said Tapse.

The stretched valuation of the Indian stock market remains a concern.  Despite the recent correction, experts still believe the market lacks valuation comfort. Any disappointment on the earnings front will make the market fall further.

“While we remain bullish on the Nifty over the next two years, we view the index as fairly priced with a temporary downward bias of approximately 8–10 per cent,” Anirudh Garg, Partner and Fund Manager at Invasset PMS, told Mint.

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Disclaimer: The views and recommendations above are those of individual analysts, experts, and brokerage firms, not Mint. We advise investors to consult certified experts before making any investment decisions.