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The Indian indices shrugged off election jitters and massively rebounded in a sharp rally on Wednesday, as the BJP-led National Democratic Alliance (NDA) prepared to stake fresh claims for government formation. 

The investors gained Rs 12 lakh crore in a single session -- after losing nearly Rs 30 lakh crore on Tuesday amid political uncertainty -- as banks, automobile, and FMCG stocks led the gains in Nifty.

The Sensex closed 2,303 points, or 3.2 per cent, up at 74,382, while the Nifty zoomed 735 points, or 3.36 per cent, to close at 22,620 on Wednesday.

Bank Nifty went up 2,126 points, or 4.53 per cent, to close at 49,054.

Experts said that in the current market scenario, investors should remain cautious about investing in momentum stocks or smallcap stocks which have remained overheated for the past two years.

“Any sustained period of sideways or downward movement in momentum stocks can trigger a sell-off in these shares. Investors, therefore, should consider the risk involved before making such investments,” said Vaibhav Porwal, Co-founder, Dezerv.

However, “we believe that the investors should capitalise on this opportunity for fresh investments in equity", he added.

As the speculative trades built around Lok Sabha election results unwind and as clarity around the new government emerges, markets will find their ground, experts noted.

With elections around the corner in several major global economies, including the US, the stock markets will watch out for the likely stand of the US Federal Reserve and other central banks.

“We believe portfolio allocations and future policies of the NDA government will be a key determinant of market movements,” said Amnish Aggarwal, Director (Research), Prabhudas Lilladher.