Sensex, Nifty 50 hit record highs, up nearly 8% in December so far; 5 reasons why market is gaining - explained

Sensex and Nifty have remained consistently positive, with gains of over 7 per cent in December and 17.3 per cent and 18.4 per cent respectively this year, attributed to healthy macro numbers, cooling US inflation, falling bond yields and dollar, and buying by FPIs.

Nishant Kumar
Updated27 Dec 2023, 04:26 PM IST
The Sensex and the Nifty hit their all-time highs of 71,913.07 and 21,593, respectively, on December 20.
The Sensex and the Nifty hit their all-time highs of 71,913.07 and 21,593, respectively, on December 20.(Agencies)

The domestic market is experiencing a surge of optimism as the Sensex and the Nifty, key equity benchmarks, have remained consistently in positive territory over the past four trading sessions. Both the indices have gained over 7 per cent in December so far, following a substantial 5 per cent gain in the preceding month.

The recent surge in the market could be attributed to healthy domestic macro numbers, cooling inflation in the US which boosted the hopes of rate cuts, sustained fall in the US bond yields and dollar and buying by foreign portfolio investors (FPIs).

Nifty 50 opened at 21,497.65 against the previous close of 21,441.35 and hit its fresh record high of 21,675.75 during the session on Wednesday, December 27.

The Sensex opened at 71,492.02 against the previous close of 71,336.80 and hit its fresh record high of 72,119.85 during the trade.

Sensex finally closed the day with a gain of 702 points, or 0.98 per cent, at 72,038.43 while the Nifty 50 closed at 21,654.75, up 213 points, or 1 per cent.

Also Read: Stock Market Today: Sensex, Nifty 50 settle at fresh closing peaks; Investors pocket over 2 lakh crore in a day

With Wednesday's gain, the Sensex and the Nifty 50 have jumped almost 8 per cent in December so far.

The overall market capitalisation of the BSE-listed firms is now near 361.3 lakh crore.

Also read: Market momentum may continue in 2024; FPI money will continue to pour into India, says Ajit Banerjee

Here are the five factors that experts believe have boosted market sentiment:

1. Rate cut hopes

As the US inflation has been cooling of late, market participants are buying stocks aggressively, expecting the US Federal Reserve to start cutting interest rates as early as March next year.

"Market pricing now shows a more than 80 per cent chance the Fed is likely to begin cutting rates next March, according to the CME FedWatch tool, with over 150 basis points of easing priced in for all of 2024," reported Reuters.

When interest rates decrease, more money flows into the financial system. This could potentially help companies make more profit which boosts market sentiment.

2. Robust growth outlook

The outlook for the Indian economy is strong. According to an ANI report, Fitch Ratings expects India to be among the world's fastest-growing countries, with resilient GDP growth of 6.5 per cent in 2024-25. For the current financial year 2023-24, it pegs GDP growth at 6.9 per cent.

As Mint reported earlier, economists suggest after a 7.7 per cent expansion in the April to September period this year, the economy is expected to sustain the growth momentum in the coming quarters at a comparable pace.

According to D.K. Srivastava, chief policy adviser at EY, the Indian economy is expected to see a 7 per cent expansion in the January to December period of 2024. If one looks at FY25, the growth is expected to be in the range of at least 6.5-7 per cent, said Srivastava.

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3. Strong FPI buying 

Foreign investors have been pumping money into the Indian financial market aggressively since November this year. Following an investment of about 24,546 crore in November, FPIs have pumped in about 78,903 crore in the Indian financial market in December so far (as of December 26), NSDL data showed.

The increased purchasing activity by Foreign Portfolio Investors (FPIs) may be linked to expectations of interest rate reductions, the decline in the US dollar and bond yields, alongside India's robust economic growth prospects.

4. Role of retail investors 

Analysts highlight that India's rising population of retail investors has significantly contributed to the domestic market's resilience, countering foreign investors' selling pressure observed before November.

BSE data shows, the number of retail investors has jumped over 27 per cent year-on-year while on a monthly basis, the number of retail investors has risen about 3 per cent.

"Retail investors’ participation has emerged as a strong force in the domestic markets and has reduced volatility, especially in those times when foreign institutional investors decided to redeem. As our economy expands and income levels go up, more investors are likely to invest in equities directly and through mutual funds. It should add depth to our market," Yogesh Patil, Chief Investment Officer -Equity at LIC Mutual Fund, told Mint.

5. Money moving to largecaps

Experts underscore that after steep gains in mid and small-caps, investors' money is now moving to largecaps due to valuation comfort.

"There is frenzy in the mid and smallcap segments where valuations are excessive. Investors should give priority to high-quality bluechips which are doing well and have good earnings visibility," said V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services.

Also Read: Nifty 50 set to clock healthy double-digit gains in 2023; what are the key challenges for the market in 2024?

Read all market-related news here

Disclaimer: The views and recommendations above are those of individual analysts, experts and broking companies, not of Mint. We advise investors to check with certified experts before making any investment decisions.

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First Published:27 Dec 2023, 04:26 PM IST
HomeMarketsSensex, Nifty 50 hit record highs, up nearly 8% in December so far; 5 reasons why market is gaining - explained

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