Indian stock markets experienced a remarkable surge in the final trading hour, with the BSE Sensex skyrocketing by 1,593 points (2%) to an all-time high of 83,116, and the Nifty50 rising 415 points to a record 25,432. Leading the rally were key players such as Bharti Airtel, Hindalco, and NTPC, which saw gains between 2% and 4%. This unexpected upswing was driven by factors such as short covering, a rally in metal stocks, and international economic developments, particularly China's planned mortgage rate cuts, which bolstered investor sentiment.

Short Covering Fuels Market Momentum

Nifty's sudden surge was largely driven by short covering, a market dynamic that often leads to rapid upward price movements.
As traders adjusted their positions amid the weekly Futures & Options (F&O) expiry, Nifty saw significant short covering on Call options within the 25,150-25,250 range. Notably, a substantial open interest was observed in the 24,500 Put (6.99 million contracts) and the 25,000 Call (11.6 million contracts), marking a previously bearish trend. The cautious environment was reflected in the Put-Call Ratio (PCR), which dropped from 0.78 to 0.60, indicating a shift in market sentiment towards a potential trend reversal at the critical 25,000 level.

According to Dhupesh Dhameja, a technical analyst at SAMCO, "Active trading in Calls and Puts around the 24,900-24,950 and 24,700-24,800 levels underpinned the sudden rise, as traders repositioned themselves in anticipation of a breakthrough."

Metal Stocks Lead the Charge

Metal stocks were among the top performers, bolstered by both domestic and international tailwinds.
The Nifty Metal Index surged by 3% intraday, reaching 9,292, as investors rushed to capitalize on the sector’s bullish outlook. Key players such as Hindalco, Nalco, NMDC, Vedanta, and Jindal Steel witnessed impressive gains, with Hindalco leading the charge at 4.5%, followed closely by Nalco at 4%, and others registering gains in the 3-4% range.

Analysts attribute the rally to positive sentiment surrounding the Chinese economy, as reports surfaced regarding potential interest rate cuts. Bloomberg reported that China might reduce mortgage interest rates on over $5 trillion worth of outstanding loans, a move aimed at spurring consumption and reducing borrowing costs for millions of families. This prospective rate reduction further fueled demand for metal stocks, which are highly sensitive to global economic conditions.

International Factors Boost Investor Confidence

China's economic policy shift played a pivotal role in bolstering global investor sentiment, particularly in the commodities and metals sectors.
According to Bloomberg, China is considering reducing mortgage interest rates by up to 50 basis points, a move intended to ease financial pressures on households and stimulate domestic consumption. As China is a major consumer of raw materials and metals, this policy shift is expected to boost demand for industrial metals globally. Investors quickly responded to this development, driving up shares of metal companies in India as the prospect of increased Chinese demand came into focus.

Reports suggest that Chinese banks are already preparing to implement these mortgage rate reductions, which could have far-reaching effects on global markets, particularly in sectors closely linked to China’s consumption and economic growth.

Bharti Airtel and Other Heavyweights Drive Broader Market Gains

Bharti Airtel emerged as a key leader in Thursday's market rally, advancing nearly 4% on both the NSE and BSE, contributing significantly to the overall upward movement.
The telecom giant's robust performance was complemented by strong showings from other heavyweight stocks, including NTPC, Hero MotoCorp, ONGC, Wipro, and Adani Ports, all of which posted gains between 2% and 4%. This broad-based rally across sectors, particularly in energy, telecommunications, and financial services, helped propel the Sensex and Nifty50 to record highs.

The sudden upward movement in these blue-chip stocks indicates a renewed investor interest in sectors poised to benefit from both domestic and global economic shifts, providing the necessary lift to the broader indices.

Options Trading and Market Dynamics

The intricate dance of options trading played a crucial role in shaping the market's trajectory.
With Nifty Options showing significant open interest in key strike prices, active trading was concentrated around the 24,900-24,950 Calls and the 24,700-24,800 Puts. As the weekly F&O expiry approached, traders scrambled to cover their short positions, thereby driving the sharp market rally. The Put-Call Ratio's decline from 0.78 to 0.60 underscored the cautious approach of market participants, highlighting the importance of the 25,000 mark as a key psychological and technical level for any future market trends.

This shift in options trading dynamics provided the market with the necessary fuel to break through resistance levels, culminating in the spectacular rally witnessed during the last hour of trading.