Bulls regained control in today’s trade as benchmark indices, Sensex and Nifty, rebounded after several days of downtrend, driven by value-buying at lower levels.

Mid-cap and small-cap stocks came back with a vengeance with the Nifty Smallcap 100 clocking the highest gain (2.07%) among diversified indices. Among sectoral indices, Nifty Media was the biggest gainer surging 3.84 percent led by smart gains in Zee Entertainment which was up nearly 9 percent in trade on news of Punit Goenka’s resignation as Managing Director.

Nifty IT which was among the key losers in yesterday’s trade reversed the trend being among the biggest sectoral gainers.

Besides, the Nifty PSE Index, which tracks 20 state-run companies, also rose more than 2 percent, with all constituents trading in the green. PSU stocks have seen the largest erosion in value since the peak in September.

The slowdown in selling by foreign investors combined with consistent buying by domestic institutional investors (DIIs) boosted sentiment contributing to the smart recovery today, experts said. Here are the key factors behind the reversal in Tuesday's session:

1) Oversold markets: The Nifty’s Relative Strength Index (RSI) had dipped below 30 in the past two sessions, signaling oversold conditions. “Such downtrends and oversold levels often lead to short-term rebounds, and the bounce we’re seeing today was overdue,” said Akshay Chinchalkar, Head of Research at Axis Securities, in a statement to Reuters. However, analysts maintain a cautious near-term outlook due to high valuations, foreign outflows, and softening earnings growth.

2) FII selling eases, DII buying rises: On Monday, FIIs net sold shares worth Rs 1,403 crore, according to exchange data. In contrast, DIIs stepped up with net purchases of Rs 2,330 crore, nearly double the FII outflows. This rare occurrence underscores strong domestic support despite persistent foreign outflows.

FII selling usually thins out as a calendar year nears its end. “While a near-term recovery is challenging, the deep correction appears to be behind us,” noted Sandip Agarwal, Fund Manager and Co-Founder at Sowilo Investment Managers, in a conversation with Moneycontrol. Agarwal also highlighted concerns over potential tariffs under Donald Trump and their impact on emerging markets. However, he added that the sharp FII selloff is likely nearing its end, with most hedge fund managers booking profits ahead of the new year.

3) Firm Asian markets and dollar retreat: Asian markets advanced on Tuesday as US bond yields and the dollar eased from multi-month highs. Investors are closely watching President-elect Donald Trump’s cabinet picks and the implications for US Federal Reserve policies.

The rupee also remained stable, trading at 84.4025 against the dollar at 10:23 am, showing minimal movement from its previous close of 84.3850. Gains in regional currencies, benefiting from the weaker dollar, helped offset foreign bank demand for dollars.