Unloved rally: Markets rebound amid scepticism after sharp March sell-off

Mumbai: The three-day rebound in markets after the sell-off since early March has been marked by scepticism and unease, making it an unloved rally. As equities trudge higher, partly driven by short covering and domestic institutional buying, a decisive shift will hinge on some respite on the war front and the market finding its footing, something which experts say has not yet happened.

Both indices had dropped roughly 8.3% from the start of March till Friday, spooked by the spike in oil prices sparked by the conflict in West Asia. The pace of the fall had resulted in markets turning oversold, typically followed by a rebound – a phenomenon that analysts describe as ‘dead cat bounce’.

The Sensex and Nifty have recovered up to 2.9% in the past three trading sessions till Wednesday, bouncing off their lowest levels since April 2025, but the tentative bounce in this period underscores doubts about the durability of the rally.

The main stock indices gave up a portion of their early gains on these trading sessions. For instance, on Wednesday, Nifty closed 0.8% higher after gaining as much as 1.2% earlier in the day. Similarly, the index rose 1.1% and 1.5% on Tuesday and Monday but ended the day 0.7% and 1.1% higher, respectively.

“The word on the Street is caution given the significant drawdowns recently, and while they are hoping for a resolution soon, investors are wary and lack optimism due to uncertain outcomes,” said Lakshmi Iyer, Group president and CEO, Bajaj Alternates. “The durability of gains can be assessed only when there is clarity on the endgame on the war front,” she said.

One reason for this is the unrelenting foreign institutional selling amid the rebound. Overseas fund managers pulled out ₹16,400 crore in the previous three trading sessions, taking their sales tally for March so far to nearly ₹75,000 crore – the highest selling in a month since January 2025. In index futures, the cuts in foreigners’ bearish bets, as reflected in their long-short ratio, have also been moderate, analysts said. “The FII long short ratio rose from 10% on Friday to 14% on Wednesday, which indicates only a marginal reduction in short positions by global investors,” said Nilesh Jain, VP and head of Technical and Derivative Research, Centrum Finverse.

Dwindling trader confidence also stems from uncertainty over whether the Nifty has formed a bottom, fuelling confusion. “Until it crosses 24,300 levels, this indecision could persist.”

While many investors are of the view that the conflict may not stretch on for long, they appear unwilling to deploy cash aggressively into equities now.

“The rebound does not enthuse foreign investors while domestic investors are stuck after buying at higher levels,” said Siddarth Bhamre, head of Research, Asit C Mehta Intermediates. “Retail investors, however, are not participating much in the buying and are waiting to see how the war shapes up.”

“The geopolitical risk from a closure of the Strait of Hormuz remains a sword hanging over us,” he said. “There are no reasons to be bullish currently and unless there is a resolution of the conflict, further declines are likely.”