On Wednesday,the BSE Sensex and Nifty50 ended the day up over 3%, rebounding from the sharp declines experienced the previous day.
Sensex ended the day at 74,382.24, up 2,303 points or 3.20% while Nifty closed the day at 22,620.35, up 736 points or 3.36%.
On Tuesday, the indices had plunged more than 5%, marking their worst performance in four years, in reaction to the less-than-expected Lok Sabha election results for the Narendra Modi-led NDA. This decline led to a staggering Rs 31 lakh crore loss in market value in just six-and-a-half hours.
Foreign portfolio investors (FPIs), who have been cautious since the Lok Sabha polls began in April, are expected to maintain their cautious stance.
Despite the market turmoil, FPIs are not expected to either invest with renewed enthusiasm or withdraw funds significantly. The lower-than-expected
Lok Sabha seats for the BJP could limit the government's decision-making capacity, influencing FPI sentiment.
"Indian markets exhibited a spirited recovery driven by broad-based buying across various sectors, as political stability appears assured. However, attention will remain on the formation of the government and the forthcoming RBI policy meeting. The market does not expect any change in RBI's policy stance given persistent high food inflation and an expectation of increased government spending, which has led to notable traction in FMCG stocks," said Vinod Nair, Head of Research at Geojit Financial Services.
Since April, FPIs have been net sellers of Indian stocks, withdrawing nearly Rs 37,700 crore, including Rs 12,436 crore on Tuesday alone, according to data from the BSE and CDSL.
Market analysts suggest that any major shift in foreign investment patterns could significantly impact the stock market.
Contrary to exit poll predictions of a decisive BJP victory, the actual results left the party 31 seats short of a majority, forcing reliance on allies such as TDP and JD(U). Investors now worry that the new government may face challenges in implementing bold policy decisions needed to sustain the country's economic growth
Leading the market rally were stocks like Mahindra & Mahindra, IndusInd Bank, and Hindustan Unilever, each gaining over 5 percent.
Other significant movers included Tata Steel, Bajaj Finance, Kotak Bank, Asian Paints, and Tech Mahindra, all of which rose by over 3 percent.