Sensex, Nifty surge over 2% but trade worries linger

India’s benchmark indices surged by more than 2% after an extended weekend on Tuesday, taking cues from resurgent Asian peers following US President Donald Trump’s 90-day pause on tariffs on all trading partners except China.

The Asian markets kicked off the week with gains on Monday, a holiday in India on account of Ambedkar Jayanti. The mood stayed upbeat on Tuesday, spilling into Indian equities, which added ₹10.5 trillion to market capitalization in a day.

Markets have turned volatile with sharp reactions to newsflow related to the tariff war unleashed by the Trump administration, said Gaurav Dua, senior vice president & head-capital market strategy at Mirae Asset Sharekhan. “Today’s market movement is the catch-up rally by India. On Monday, the postponed tariff effective date by 90 days led to markets’ rally, globally. The Indian market is reacting today due to a trading holiday yesterday.”

Nifty 50 settled 2.2% higher at 23,328.55 points, while S&P BSE-Sensex ended the session at 76,734.89, up 2.1%.

That means Nifty 50 has rebounded 3.5% since 8 April, after tumbling 5% between 2 April and 7 April. The Sensex followed a similar rollercoaster—down 4.5% one week, up over 3% the next.

The Nifty 50 not only closed above its 50-day exponential moving average (EMA) of 22,950 but also crossed the 100-day EMA at 23,310 on Tuesday—indicating a potential reversal of the recent downtrend, said Kkunal Parar, vice president at Choice Equity Broking. Should the index sustain levels above these key averages over the next few sessions, Parar anticipates an upward move toward the 23,800–24,200 range.

Volatility falls, broader markets jump

Meanwhile, volatility, measured by India VIX, plunged 20% to close at 16.13—a sharp drop that Parar believes could extend further to around 12 in the coming days. The decline in volatility, he said, is another indication that market sentiment may be shifting in favour of a potential uptrend.

Tuesday’s gains were broad-based, with the Nifty Smallcap 250 rising 3.1% and Nifty Midcap 100 gaining 2.9%.

Nimesh Chandan, chief investment officer at Bajaj Finserv AMC, however, said the market is seeing a notable correction in small and mid-cap stocks following a major rally over the past 12-18 months. Despite the pullback, he believes that the valuations of mid- and small-caps are still not reasonable, and a further correction could be on the cards.

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While there is better value in large caps, he said there are “some pockets within mid-caps and small-caps where value has started to emerge, where risk/reward has turned favourable, and some contrarian ideas can be found”.

After the recent correction, broader market valuations have also cooled off, but investors are still expected to remain selective. Signs of stability could help improve sentiment, and better-than-expected earnings might give the market an extra push, said market experts. 

Adding to the optimism, the US Dollar Index slipped sharply to 99.64, a three-year low.

“Recent concerns about US growth have triggered capital outflows from the US and a depreciating dollar has made India a more attractive destination for inflows,” said Ashish Gupta, chief investment officer at Axis Mutual Fund.

FPIs return

Foreign portfolio investors (FPIs) net bought stocks worth ₹6,065.78 crore on Tuesday, while domestic institutions net sold ₹1,951.60 crore, according to provisional data on BSE. FPI inflows follow about 11% drop in the Nifty 50 and Sensex each since the September highs, offering more reasonable entry points.

Still, Dua said that bouts of volatility could continue as the world adjusts to disruption in global trade. “It might take a little longer for the dust to settle down.”

Gupta of Axis Mutual Fund said while the 90-day pause offers countries a window to negotiate trade terms, markets could remain volatile in the near term.

Concerns persist

Trade tensions between the US and China continue to rachet up. In response to reciprocal tariffs, China has reportedly told its airlines to halt new Boeing deliveries and stop buying US parts, in response to retaliatory tariffs.

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Meanwhile, Trump announced a temporary pause on tariffs for some consumer electronics, but he and Commerce Secretary Howard Lutnick said the relief may not last, keeping uncertainty high. According to reports, Trump is also actively negotiating with key partners like Vietnam, India, South Korea, and Japan, aiming to strengthen strategic ties to counter China.

The tariffs imposed by the US government triggered a wave of uncertainty, stoking fears of slowing global growth, higher inflation, and a subdued investment climate, Gupta said. Even with the rollback of reciprocal tariffs, the average tariff on US imports for Asia will be close to 40%, he said.

A BlackRock Investment Institute report of 14 April said it has extended its tactical investment horizon to six to 12 months to take on more risk. “Yet, we still think tariffs can hurt growth and lift inflation, and major uncertainty remains.”

For the Indian markets, the spotlight shifts to stock- and sector-specific action as quarterly earnings and management commentary start setting the tone.