At record high! Sensex jumps over 1,100 points, Nifty over 300 points: 5 reasons why
The benchmark Nifty jumped as much as 334.6 points to hit a new high of 20,602.50. Meanwhile, the Sensex surged 1,106.6 points to hit a record high of 68,587.82.
The domestic equity market hit a record high on Monday after the BJP's stellar win in 3 of 5 state elections. Mizoram election results are being announced today. The outcome gives investors confidence that the incumbent government will retain power in the upcoming Lok Sabha polls.
Moreover, a rise in foreign investor inflows, a fall in US bond yields, strong GDP growth as well as expectations of no more rate hikes have also aided the gains.
The benchmark Nifty jumped as much as 334.6 points to hit a new high of 20,602.50. Meanwhile, the Sensex surged 1,106.6 points to hit a record high of 68,587.82. While the Nifty had also reached a new high in the previous session (December 1), Sensex hit its peak today for the first time since September 15.
Just in the 2 sessions of December, the Indian market has risen over 2 percent.
Mid and small-cap indices also hit their fresh record highs during the session. The Nifty Midcap 100 index hit its record high of 44,148.90, up 1.7 percent in intraday deals, while the Nifty Smallcap 100 index scaled its fresh peak of 14,514.90, up 2 percent in intraday deals.
"The state elections results have turned out to be a big event which can trigger renewed optimism and further rally in the market. The market likes political stability and a reform-oriented, market-friendly government. From the market perspective, the results were better than expected. The market has already partly discounted a BJP victory with a 500-point rally during the last 4 sessions. But the mood is so exuberant that the rally will continue. The global backdrop also is favorable with the US 10-year bond yield declining to 4.23%. An across-the-board rally in stocks is in the offing.
A restraining factor will be the valuations which are high and will get stretched further with the rally gaining momentum. In the near-term, the market will ignore fundamentals and move up but soon high valuations will trigger some selling," explained V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services.
Below are the five key factors behind the market rally:
BJP win in 3 of 5 states
The BJP has comfortably won in three out of five state elections, beating the exit polls. While Mizoram elections are being announced today, the BJP has retained Madhya Pradesh (MP) with a strong majority and regained Rajasthan and Chhattisgarh from the Congress with a comfortable majority. Vote share difference between the BJP and the Congress in MP, Rajasthan and Chhattisgarh stands at 8.2%, 2.2% and 4.2%, respectively. In Telangana, the Congress has defeated the BRS by a thin majority. Thus, the verdict is clear for all four states. These four states together account for 75 Lok Sabha seats (out of 544).
These results, branded as a semi-final to the forthcoming May’24 Lok Sabha elections, have provided comfort to the markets as far as political stability is concerned. The incumbent BJP’s performance in avoiding anti-incumbency and retaining a big state like MP (5th consecutive term) while managing to regain Rajasthan and Chhattisgarh should provide the market with a good tailwind for the 2024 general elections.
Strong FPI inflows
After 2 months of strong outflows, foreign portfolio investors (FPIs) turned net buyers in the Indian stock market in November. A decline in the US treasury yields and softening of the dollar amid rising bets that the US Federal Reserve is done with raising key interest rates have triggered foreign fund inflows into emerging markets like India. FPI inflows into Indian equities during November stood at ₹9,001 crore, compared to over ₹39,000 crore worth of shares sold in September and October together. Meanwhile, just in the one session of December, on the 1st, FPI inflows in Indian equities stood at ₹9,744 crore, as per NSDL data.
Strong domestic macro trends
India's Q2 GDP grew 7.6 percent, significantly exceeding expectations. A Mint poll of 18 economists had estimated the gross domestic product (GDP) growth to be about 6.8 percent in the quarter.
Apurva Sheth, Head of Market Perspectives & Research at SAMCO Securities, observed that the sharp upside rise seen in India’s second-quarter GDP figure underlines that the economic growth has come on the back of robust domestic demand.
"Growth based on domestic demand also points to the fact that India's economy will continue to grow in the future despite the global economy slowing down. Hence, the Indian economy will also continue to attract foreign capital inflows and will carve out a different category among its emerging market (EM) peers," said Sheth.
Hopes of no more rate hikes
Amid expectations that the central bank will keep the benchmark interest rates unchanged, the rate-setting monetary policy panel will begin deliberations in the coming week. Headed by RBI Governor Shaktikanta Das, the six-member MPC will meet for three days - from December 6 to December 8, and the decision will be announced on Friday. The RBI has kept the repo rate unchanged at 6.5 percent since February this year. This will be the central bank's fourth MPC meeting for fiscal 2023-24 and the last one for calendar year 2023. The market largely expects the central bank to continue its current stance as India's retail inflation continues to remain above its 4 percent target.
Positive global cues
Global markets witnessed a bullish trend, buoyed by expectations that the European Central Bank has concluded its rate-hiking cycle amid a backdrop of easing inflation. The US market showed almost 10 percent rally only in the month of November. US 10-year bond yields and the dollar index are also cooling off, which gives strength to the market.
Aside from that, the US Federal Reserve Chairman Jerome Powell said on December 1 that inflation is slowing steadily, but it’s too early to declare victory or to discuss when the Federal Reserve might cut interest rates. Powell reaffirmed the central bank’s intent to remain cautious on interest rates but also said that the hoped-for “soft landing" of the US economy seemed to be falling into place.
Investors remain positive on hopes that the US central bank heads and fellow policymakers are ready to call an end to interest rate increases.
Technical View
Aditya Gaggar, Director of Progressive Shares
Indian markets commenced the December series on a strong foot and ended the week at a fresh high of 20,267.90 by giving a V-shaped pattern breakout and as per the pattern, the target is 21,500. An early indication from GIFT Nifty suggests the beginning of the week at new record levels. Another positive sign for the market is the participation of the banking stocks (Inverted Head and Shoulder Breakout in BankNifty, target- 46,300) and we are bullish on ICICI Bank which has given a breakout from a Symmetrical Triangle Formation.
Anand James, Chief Market Strategist at Geojit Financial Services
Nifty weekly RSI is heading into overbought levels that have historically forced the index to turn lower. However, momentum is still in favor with ADX strong and the directional moving indicators not yet extreme. This allows the window for Nifty to stretch at least till 20500-600 before the calls for a turn lower become stronger. 20190/070 or 19800 could serve as downside markers until then. Meanwhile, VIX is showing signs of bottoming out after languishing not far from a record low for a substantial period of time, which had not let the traditional correlation between Nifty and VIX into play. We are now bracing for a 20% rise in volatility here on, from 12.3 last recorded on Friday, thus elevating to a level where the correlation will become more meaningful.
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