India’s benchmark indices, Sensex and Nifty, experienced a wave of volatility on December 5, initially reversing earlier losses before moving into positive territory. This shift was largely driven by strong gains in IT stocks, particularly Infosys, and a solid performance by Reliance Industries. As of 12:20 pm, the Sensex surged 500 points (0.6%) to 81,450, while the Nifty rose 133 points (0.54%) to 24,600.35. The market breadth remained mixed, with 1,997 shares advancing, 1,795 shares declining, and 154 shares unchanged.

Infosys led the Sensex gainers, rising 1.5%, followed by TCS and Reliance Industries, both of which recorded gains of 1.1%. On the downside, NTPC emerged as the top loser, falling 1.3%, followed by Asian Paints and Nestle India, which dropped by 1% and 0.5%, respectively. Sectoral performance was dominated by the Nifty IT sector, which saw an increase of 1.2%, while both Nifty Bank and FMCG gained 0.5%. However, Nifty Pharma and Realty sectors witnessed slight declines of 0.3% each.

A significant factor behind this market performance was the cautious sentiment among investors, particularly due to the upcoming RBI bi-monthly policy announcement scheduled for December 6. The Reserve Bank of India (RBI) is widely expected to maintain policy rates unchanged for the 11th consecutive time, as inflation remains persistent. However, there is speculation that the RBI might opt to reduce the cash reserve ratio (CRR) due to slower economic growth in Q2 of the fiscal year. Prashant Tapse, an analyst at Mehta Equities, noted that despite this speculation, few anticipate a rate cut at this meeting, as the RBI will likely await further macroeconomic data before making any moves. This cautious approach is compounded by concerns over inflation, which remains above the RBI’s 4% target.

"Market volatility is heavily influenced by expectations surrounding the RBI’s decision on rate cuts and the central bank’s focus on liquidity measures following a surprise dip in economic growth," said Tapse. He also pointed out that the market’s technical resistance stands near 24,800 and that if the Nifty can close near 24,800 this week, the market could potentially move towards 25,000 in the near future. The broader trend appears to be positive, but the path to 25,000 could be volatile.

After opening higher for the fifth consecutive session due to gains in US equities, India’s flagship indices erased earlier gains, falling sharply. However, by midday, both Sensex and Nifty had recovered, gaining over 900 points and 300 points from their lows. The return of Foreign Institutional Investors (FIIs) after two months of heavy selling provided a much-needed boost to market sentiment. According to NSDL data, FIIs invested over ₹13,000 crore in Indian equities on December 2 and 3, and ₹1,797 crore on December 4, according to provisional figures from NSE. This follows significant FII outflows in the previous two months: ₹94,017 crore in October and ₹21,612 crore in November.

US equities also experienced a boost, following optimistic comments from Federal Reserve Chair Jerome Powell about the resilience of the US economy. Powell highlighted that the US economy remains in "remarkably good shape" and hinted that the Fed may take a cautious approach to interest rate reductions, which sparked optimism among investors. This led to a rally, pushing the Dow Jones past the 45,000 mark for the first time, signaling strength in the US stock market despite ongoing global uncertainties, particularly in South Korea and France.

VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services, emphasized the key drivers of the ongoing market rally. He cited strong growth and declining inflation in the US as central factors supporting the positive outlook. However, he cautioned about stretched valuations in both US and Indian markets, advising investors to be cautious. He also noted that the renewed FII buying is supporting large-cap stocks, particularly in the banking sector, which may propel the Bank Nifty to record highs and further drive the broader Nifty index.

Meanwhile, Asian equities traded in a narrow range, as regional currencies remained stable amid ongoing political instability in France and South Korea. The MSCI Asia Pacific index showed little change, with gains in Australia and Singapore offset by losses in Hong Kong and India. Korean equities also retreated as the ruling party blocked the impeachment motion against President Yoon Suk Yeol, adding to the region’s political uncertainty.

Looking at the short-term technical indicators, Akshay Chinchalkar, Head of Research at Axis Securities, observed a spinning top pattern on the daily chart, indicating that the market is seeking new directional cues. A positive Ichimoku signal provides support to the bullish case, and the focus is now on holding short-term support levels between 24,240 and 24,300. A move beyond 24,800 is now the next target, but a breach below 24,240 could prompt a reassessment of the current market outlook.

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