The markets on Monday rallied sharply, with the benchmark Sensex and the Nifty closing above 40,000 and 12,000 for the first time after weak economic data, coupled with slump in oil prices, increased expectations of a rate cut by the Reserve Bank of India (RBI).

The gains came despite a slump in global equities amid fears of economic slowdown due to the US-China trade conflict. Driven by the robust show by indices, investor wealth rose by Rs 1.76 trillion.

Analysts said India was benefiting from the weakness in global markets which is resulting in a fall in oil prices, US bond yields and the dollar. The 10-year US bond yield has declined from 2.54 per cent to 2.1 per cent in the past one month.

Brent crude prices have gone down by 15 per cent to below $64 a barrel in the past fortnight. Prices, however, were volatile on Monday. The fall in global oil prices has helped ease macroeconomic pressure and the inflation outlook, providing more comfort to the RBI.

The 10-year government bond yield ended below 7 per cent for the first time since November 2017. The rupee appreciated 43 paise to end at 69.26 against the dollar.

Foreign portfolio investors (FPIs) have stepped up their India investment amid softening of US bond yield. On Monday, FPIs invested Rs 3,069 crore in the domestic market.

The RBI will announce its bi-monthly monetary policy on Thursday. In the last two policy reviews, it had cut the repo rate by 25 basis points each. According to experts, the RBI will go for another round of rate cut, the third in a row, on Thursday to prop up economic growth, which dropped to a five-year low in the final quarter of 2018-19, and benign inflation. The gross domestic product data, released Friday, showed growth in the fourth quarter of 2018-19 slowing to 5.8 per cent — the slowest in several quarters.

“Two things one needs to look out for is the RBI policy and the FM’s plan to revive growth. The markets are going to latch on to every word that the finance minister is going to speak about how she is going to revive growth,” said Andrew Holland, CEO, Avendus Capital Public Markets Alternate Strategies.

Market players said the market is hoping that since we have a stable government with a more significant mandate, there will be continuity in reforms and the government will take quick action that will reverse slowdown. However, they expressed concerns about the valuations.

“It’s not a cheap market, and the market is trading at the higher end of the valuation range. From now on, the onus will be on earnings. If it comes quickly, the market will be fine. If earnings revival does not happen, markets will be disappointed,” said Jyotivardhan Jaipuria, founder, Valentis Advisors.

The broader market underperformed the benchmarks with the NSE Midcap 100 Index rising by 0.96 per cent and the NSE Smallcap 100 gaining 0.28 per cent.

All of BSE’s 19 sectoral indices gained, with the auto index gaining the most.