The Indian stock market has seen a resurgence in the past two trading sessions, prompting discussions about a potential "Santa Rally." The Sensex has collectively gained nearly 1,000 points in two days, while the Nifty 50 has climbed back above the 26,100 mark. This rebound follows a period of volatility and has sparked renewed optimism among investors.

Factors Driving the Market Surge

Several factors appear to be contributing to this upward trend:

• Rupee Appreciation: The Indian rupee has strengthened against the U.S. dollar, buoyed by fresh foreign fund inflows and interventions by the Reserve Bank of India (RBI). A stronger rupee boosts investor confidence and attracts foreign investment. On Monday, the rupee rose 22 paise to 89.45 against the dollar.
• Global Cues: Positive trends in global markets have also played a significant role. Asian markets, including South Korea's Kospi, Japan's Nikkei 225, Shanghai's SSE Composite, and Hong Kong's Hang Seng, have all traded positively. US markets also ended higher on Friday.
• Anticipation of US Federal Reserve Rate Cuts: Investor sentiment has been further buoyed by expectations of potential interest rate cuts by the U.S. Federal Reserve early next year. Lower-than-expected U.S. consumer price inflation data for November has reinforced these expectations.
• Foreign Fund Inflows: Foreign Institutional Investors (FIIs) have turned into net buyers, contributing to the market rally. On Friday, FIIs bought equities worth Rs 1,830.89 crore. Domestic Institutional Investors (DIIs) also supported the market, purchasing equities worth Rs 5,722.89 crore in the previous trade.
• Renewed Investor Appetite: The recent gains suggest a renewed appetite for risk among investors after a period of uncertainty.

Sectoral Performance

On Monday, several stocks experienced significant gains. Shriram Finance Ltd, Wipro Ltd, and Infosys Ltd were among the top performers.

Santa Rally: Fact or Fiction?

The term "Santa Rally" refers to a tendency for stock markets to rise during the last five trading days of December and the first two trading days of January. Historical data suggests that Indian equities often show a pattern of outperformance during this period, with small-cap stocks leading the charge.

According to SAMCO Securities data, small-cap stocks have historically been the biggest beneficiaries of the Santa Claus Rally, showing a 100% success rate and averaging 3.55% returns. Mid-cap stocks have also performed well, with an average return of 2.63% and a 90% success rate. Large-cap stocks have delivered more modest but still dependable returns, averaging 1.78% with a 90% win rate.

Expert Opinions

VK Vijayakumar, Chief Investment Strategist at Geojit Investments Limited, believes that the market is heading for a year-end rally, accelerated by the rupee's reversal and FIIs turning buyers. Ponmudi R, CEO of Enrich Money, noted that sustained DII participation and FIIs turning net buyers have boosted market confidence.

Conclusion

The recent surge in the Sensex and Nifty has raised hopes for a Santa Rally in the Indian stock market. While it remains to be seen whether this momentum will continue, several factors, including a stronger rupee, positive global cues, and renewed investor confidence, suggest a potential year-end upswing. Investors should remain cautious and focus on fundamental analysis while also keeping an eye on market trends.