Nifty 50 above 100-DEMA. Five factors that are driving the Indian stock market. Is a Santa Claus rally around?

Stock market today: The Indian stock market clocked healthy gains for the third consecutive session on Tuesday, December 3, led by gains in shares of select heavyweights, including Reliance Industries, HDFC Bank and Larsen and Toubro. Benchmark index Nifty 50 jumped 0.70 per cent to the level of 24,445.80, breaking above its 50 and 100-day exponential moving averages (DEMA).

According to Trendlyne, an equity research platform, Nifty 50 is above its 100-day EMA of 24,306 and 50-day EMA of 24,364. However, the index is yet to breach its 50-day and 100-day simple moving averages (SMAs) of 24,643.9 and 24,700.4, respectively.

The domestic market is witnessing a broad buying interest as the mid and smallcap segments also clocked healthy gains. The Nifty Midcap 150 and the Nifty Smallcap 250 index jumped up to a per cent.

Why is the Indian stock market rising?

There are five key factors that are driving the Indian stock market higher:

1. Heavyweights hog the limelight: Healthy gains in shares of select heavyweights boosted Nifty 50. Shares of Reliance Industries, HDFC Bank, Adani Enterprises, Adani Ports and Larsen and Toubro jumped 1-6 per cent, keeping the market aloft.

“The strength in heavyweights like Reliance and HDFC Bank impart resilience to the market,” V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services, observed.

2. Banking stock rise: Nifty Bank index jumped almost 1 per cent during the session, hoping that the Reserve Bank of India (RBI) may cut CRR (cash reserve ratio) on Friday, boosting the bank’s profitability. Nifty Bank, in sync with the benchmark Nifty 50, has been green since last Friday.

“Banking stocks bouncing back since Friday indicate that the market is expecting a CRR (cash reserve ratio) cut coming Friday, which will boost banks’ profitability,” said Vijayakumar.

3. Focus shifts to RBI’s response to slowdown: The RBI’s Monetary Policy Committee (MPC) meeting will begin on Wednesday, December 4, and the policy decision will be announced on Friday, December 6.

The focus now is on policy response from the RBI after the September quarter GDP numbers came surprisingly low. Weak Q2 GDP numbers did not roil market sentiment as it was already discounted.

“The market is ignoring all the negatives and going up, which indicates that its undertone is very bullish. The market has no fresh, positive triggers, but it has already discounted the negative triggers. The market already discounted the poor Q2 GDP numbers, as poor Q2 results of Indian companies indicated economic growth moderated. The focus now is on the RBI’s policy response towards the slowdown,” Vijayakumar said.

4. Low-level buying: The Indian market experienced a healthy correction in October and November, with the Nifty 50 declining by approximately 8 per cent from its all-time high of 26,277.35. Experts believe investors are capitalising on lower stock prices, which is providing support to the market.

5. Positive global cues: Healthy gains in major global peers also influenced domestic market sentiment. Several Asian and European markets rose by a per cent following record highs on Wall Street overnight.

Is a Santa Claus rally around?

Too early to say so. The market lacks fresh triggers to sustain its gains. Currently, it is factoring in a recovery in economic growth and robust Q3 earnings.

However, geopolitical uncertainty remains a significant risk. Additionally, it remains to be seen how Donald Trump will act on the tariff front. Over the weekend, Trump threatened to impose 100 per cent tariffs on BRICS nations if they attempt to replace the US dollar.

“Headwinds remain. The dollar index experienced a sharp rebound in the previous session, driven by US President-Elect Trump’s rhetoric of imposing 100 per cent tariffs on BRICS nations if they proceed with plans to introduce or support a new currency to rival the US dollar in international trade. This has strengthened the greenback and might exert pressure on emerging market equities, including India,” Sugandha Sachdeva, Founder of SS WealthStreet, pointed out.

Vijayakumar said it is very difficult to say that it is the start of the Santa Claus rally as concerns such as foreign capital outflow, uncertainty surrounding the Fed’s interest rate path, and President-elect Donald Trump’s tariffs move persist.

On the technical front, experts still do not feel confident that the index could reclaim the 25,000 mark by the end of the current calendar year.

“It is too aggressive to think that the Nifty 50 may reclaim 25,000 by the end of the year. We already witnessed a sharp correction, and after such corrections, we generally see a positive consolidation before the market builds up positive momentum,” said Amol Athawale, VP of technical research at Kotak Securities.

Athawale observed that earlier, the index’s resistance was around 24,350. Today, it has surpassed that level. The momentum may continue. However, due to the temporary overbought condition, we may see a rangebound trade or a minor correction tomorrow or the day after tomorrow.

“The larger picture of the market is on the positive side. For the short term, the 20-day SMA, or 24,000, is the immediate support. On the higher side, the 50-day SMA, or 24,625, would be an immediate resistance for the Nifty 50. If the index breaches this level, it can rise up to 24,800,” said Athawale.

“The Nifty 50 index has staged a sharp rally from the key support level of 23,900 over the past two trading sessions. The upside momentum is likely to persist if the index manages to sustain above the crucial 24,350 level, which aligns closely with the 100-day exponential moving average (DEMA) and is proving to be a strong resistance on the upside,” said Sachdeva.

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