Indian equity markets delivered a strong performance on Thursday, with both benchmark indices staging a sharp recovery after three consecutive sessions of decline. The BSE Sensex surged over 800 points while the Nifty 50 successfully reclaimed the psychologically important 25,300 level, marking a significant turnaround in investor sentiment.

Market Performance and Wealth Recovery

The day's rally proved substantial for investor wealth restoration, with key metrics showing impressive gains:

This recovery partially offset the damage from the previous three-session slide, during which markets had wiped out nearly ₹14.00 lakh crore in market value. Both benchmark indices had fallen approximately 2% each over the past three sessions before Thursday's rebound.

Key Factors Behind the Market Rally

Global Sentiment Improvement

The primary catalyst for Thursday's market recovery was the significant improvement in global risk sentiment. Indian shares opened sharply higher, tracking a broader rebound in global equities following positive developments from the United States.

Asian markets demonstrated strong performance, climbing about 1% in line with overnight gains on Wall Street. This regional strength provided crucial support for Indian equities during the trading session.

Easing Geopolitical Tensions

U.S. President Donald Trump's policy clarifications at the World Economic Forum in Davos played a crucial role in calming investor nerves. Key developments included:

• Trump ruled out the use of force to seize Greenland
• Dropped plans for new tariffs on European allies
• Suggested a deal was in sight to end the dispute over Danish territory
• Stepped back from earlier threats to impose tariffs as leverage

Positive Trade Outlook

Adding to the optimistic sentiment, Trump indicated that the U.S. is "going to have a good deal with India," signaling potential progress on bilateral trade agreements. This statement contributed to the positive undertone for Indian equities and helped boost investor confidence.

Previous Session Challenges

The market's recovery came after a challenging period marked by several headwinds that had pressured both benchmark indices. The previous three-session decline was attributed to multiple factors including escalating concerns over geopolitical tensions, persistent foreign investor selling, and subdued corporate earnings performance.

Thursday's rally effectively snapped the losing streak and demonstrated the market's resilience in responding to improved global conditions and reduced uncertainty around key policy issues.

Indian equity markets are expected to open on a positive note following a technical bounce-back after recent sharp sell-offs, though several headwinds continue to challenge market sentiment. Analysts point to sustained foreign portfolio investor (FPI) selling and underwhelming third-quarter performance by some index heavyweights as key factors likely to keep markets under pressure.

Global Sentiment Improves Market Outlook

The improved global tone stems from easing trade and geopolitical concerns, which has lifted risk appetite worldwide. US President Donald Trump's softer stance on Greenland has contributed to positive sentiment across global markets. This shift in global risk appetite has triggered a rebound in risk assets while prompting some profit-taking in safe-haven assets like gold and silver.

Ponmudi R, CEO of Enrich Money, noted that the improved global environment may help stabilize domestic markets after two consecutive sessions of sharp selling, though investors are likely to remain cautious in their approach.

Key Market Challenges Persist

Despite the positive opening expectations, several significant challenges continue to weigh on market sentiment:

The rupee's decline to fresh record lows has intensified concerns around imported inflation and capital outflows. Meanwhile, earnings recovery has been slower than anticipated, with elevated valuations undergoing a time-wise correction rather than experiencing a sharp price-led decline.

Volatility Indicators Signal Caution

Market volatility has increased significantly, with India VIX surging nearly 20% over the last three sessions. This surge reflects rising uncertainty driven by multiple factors including global macro risks, earnings volatility, and currency pressure.

The derivatives market continues to send weak signals, according to Dhupesh Dhameja, Derivatives Research Analyst at SAMCO Securities. Call writers have aggressively added fresh positions at at-the-money and nearby strikes, effectively capping near-term upside potential.

Market Positioning and Outlook

The Put-Call Ratio (PCR) has risen to 0.68 from 0.58, indicating elevated caution and continued dominance of call writers. Put writers have concentrated their positions at lower strikes, suggesting market expectations of range-bound movement with limited immediate downside.

Market participants are closely monitoring FPI positioning, which remains in oversold territory. Focus is also shifting toward the EU-India trade deal developments and upcoming Budget expectations, with gradual building of expectations around potential capital expenditure and policy support measures. However, near-term sentiment remains defensive and highly selective, with global political developments and US policy rhetoric likely to influence market volatility in the immediate term.