Indian equity benchmarks, Sensex and Nifty 50 rose ahead of the Economic Survey 2025 on January 31, tracking gains in global markets. Expectations of favorable triggers from the upcoming Union Budget 2025 also aided bullish sentiments. Consumer durables, IT, and auto stocks steered the rally, while financials weighed on the benchmarks.

At 10:02 hrs IST, the Sensex was up 394.70 points or 0.51 percent at 77,154.51, and the Nifty was up 143.85 points or 0.62 percent at 23,393.35. About 2,182 shares advanced, 878 shares declined, and 118 shares unchanged.

"I believe the markets have already priced in a lot of pessimism regarding the upcoming Budget," said Sandip Agarwal, Fund Manager & Co-founder of Sowilo Investment Managers LLP. "The general perception is that the government has limited room to maneuver due to the depreciating rupee and the recent rate cuts in the U.S. This raises concerns about how much they can allocate for capital expenditure, borrowing, and fiscal deposits. However, I think we are at the peak of this pessimism."

Sensex and Nifty have been on a three-day winning streak despite FIIs unwinding long positions. Jigar Patel, Senior Manager of Equity Research at Anand Rathi Shares & Stock Brokers, believes this is more of a relief rally than a pre-budget rally. "FIIs have been buying in stock futures for the last four to five days, purchasing Rs 1,800 crore daily in key stocks—that's the real driver," he noted.

Agarwal pointed out that whether this uptrend is a "pre-Budget rally" or just a rebound from overselling is debatable. "The key takeaway is that much of the pessimism is behind us. If there are no fresh negative developments, markets should continue to perform well."

Yet, despite the recent uptrend, Nifty remains 11 percent below its record high from September 27. Slowing economic growth, weaker corporate earnings, and elevated U.S. Treasury yields have triggered massive FII outflows—Rs 86,100 crore worth of Indian equities offloaded so far in January, making it the second-highest monthly outflow on record.

Agarwal warns that one risk still looms large. "One potential risk is a revision in capital gains tax, which has been speculated (for the Budget 2025). If such a change occurs, it would be a significant negative, especially for FIIs, who are already struggling with returns. This could lead to further outflows and increased volatility."

In the broader market, both BSE Midcap and BSE Smallcap indices are nearly 1 percent up. Analysts believe quality mid-cap stocks with earnings visibility and reasonable valuations should continue to do well. However, stocks with stretched valuations could face headwinds in the near term.

Tata Consumer, L&T, Trent, Bharat Electronics, and Titan climbed 2-4 percent, leading the Nifty 50 gainers, while Bharti Airtel, Bajaj Finserv, Coal India, Bajaj Finance, and NTPC slipped 1-2 percent, dragging the index lower.

Tata Consumer shares rose 4 percent after the company reported December quarter results that met analysts' expectations. Shares of construction giant Larsen & Toubro gained 3 percent following the release of positive earnings for the December quarter, driven by a rise in net profit, revenue, and strong gains in its order book. Shares of Navratna defense company Bharat Electronics climbed 2 percent after reporting strong Q3 results, complemented by an equally optimistic management commentary that received praise from brokerages.

Shares of Jindal Steel & Power tumbled 13 percent after the company reported its December quarter results. The company's revenue remained flat year-on-year, while profit plummeted by 50 percent. Additionally, margins contracted by nearly 600 basis points compared to the same period last year.

"The Nifty has gained over 500 points in the past three sessions from its recent swing low of 22,786, buoyed by short covering and optimism surrounding growth-oriented policies expected in the Union Budget," Devarsh Vakil, Head - Prime Research, HDFC Securities. "The index now faces immediate resistance at the previous swing high of 23,426, while finding support in the 23,050-23,100 range."

Overnight, U.S. markets ended a volatile session higher as investors digested major earnings reports. Tesla's upbeat outlook offset Microsoft's weaker-than-expected forecast. However, sentiment wavered briefly after former U.S. President Donald Trump announced plans for a 25 percent tariff on imports from Mexico and Canada, sparking fresh inflation concerns.

Asian markets followed Wall Street's lead, with Japan's Nikkei 225 up 0.2 percent and Topix edging higher. However, South Korea's Kospi slipped nearly 1 percent, while the small-cap Kosdaq lost 0.5 percent. Chinese and Hong Kong markets remained closed for the Lunar New Year holiday.