Banking boom sends Sensex soaring past the historic 78,000 mark

On Tuesday, the BSE clocked an all-time high of 78,164.71 points in intraday trading, (REUTERS)
On Tuesday, the BSE clocked an all-time high of 78,164.71 points in intraday trading, (REUTERS)

Summary

  • India Inc is experiencing strong earnings growth, buoyed by a stable government and the promise of policy continuity, which will continue to attract more investors to the Indian market. Moving forward, the trend will hinge on investor expectations regarding the government's budget priorities.

Mumbai: Banking and information technology stocks took the market indices to fresh peaks on Tuesday on the backdrop of a relatively quiet period over the past week marked by investors sitting on the fence, awaiting some sort of stimulus, especially from the upcoming Union budget.

Other factors have also been at play. According to Dhiraj Relli, MD & CEO of HDFC Securities, the gradual rise of the market over the past few days has been fed by participants wary of high valuations. Relli said they also fear sharp profit booking before or after the budget, which has not happened so far. Meanwhile, even Q1FY25 numbers are not expected to be great given the election-related disruption, he added.

At the same time, Relli believes India still offers visible growth at a good pace over the next few years, unaffected by global developments. Besides, a decent monsoon could improve growth prospects further while bringing down inflation. And a rate cut by the US Fed over the next few months could make equity as an asset class even more attractive, benefitting Indian equities through more inflows, he explained.

What drove the rise on Tuesday

On Tuesday, the BSE surpassed the 78,000-mark milestone, clocking an all-time high of 78,164.71 points in intraday trading, but settling at 78,053.52 points, up 0.9%. Meanwhile, the Nifty50 ended 0.8% higher at 23,721.30 points with the index hitting a record high of 23,754.15 points intraday.

In addition, Nifty Midcap 100 and Nifty Smallcap 250 hit all-time highs of 55,922.95 and 17,219.05 points, respectively.

Also read |  Nifty projected to reach 25,200 by December this year: ICICI Securities

What drove the upward move of the market on Tuesday was gains in financial services and information technology (IT) stocks. HDFC Bank, ICICI Bank and Axis Bank, Reliance Industries (RIL), Larsen & Toubro (L&T), and Infosys were the biggest contributors to the surge.

Nifty Bank index registered a fresh high on Tuesday, closing 1.7% higher. What acted as a sentiment booster for this sector was the better-than-expected current account deficit.

“India's current account deficit reduced to 0.7% of GDP in FY24 from 2% in FY23 and recorded a surplus of 0.6% of the GDP in Q4 due to higher services exports," highlighted Ajay Menon, MD & CEO, broking & distribution, Motilal Oswal Financial Services.

Also read |  Indian stock market: 9 key things that changed for market over weekend

The Nifty 50 has been largely consolidating in a range of 1,000 points for the past couple of months, said Gaurav Dua, senior vice president and head - capital market strategy, Sharekhan by BNP Paribas. He pointed out that there is buying interest below 22,500 and some selling pressure beyond 23,500 on Nifty.

“We see it as a one-time correction, which is healthy for the sustenance of the rally," said Dua. He believes sectors such as private banks and IT along with heavyweights RIL and HUL will have to take on the baton to break out of the range into higher levels.

“Banks have more catching up on the up, as do IT services and fast-moving consumer goods," said Relli, adding that pre-budget buying could happen in defence, rail, agri-based and infrastructure stocks, whereas oil & gas and pharmaceuticals could underperform in the near term.

Meanwhile, Nishit Master, portfolio manager, Axis Securities PMS said, “We believe that over the next few days, markets will keep consolidating till we get incremental news which drives FPI or domestic flows". One such event could be budget expectations and actual delivery, which will drive future market movement in the next month, he explained.

Although investor sentiment for the coming year is upbeat, experts said there might be periods of consolidation or occasional dips in the short term.

From the budget 2025 perspective, Menon of Motilal Oswal Financial Services believes the new government will largely maintain its thrust on capex and investment-led growth. Overall, he expects the policy agenda of the NDA government (investment-led growth, public capex, infrastructure creation, manufacturing, thrust on renewable energy, investments in power, PLI, etc.) to continue. “Hence, we expect the market to maintain its positive momentum as we draw nearer to the event."

Also read | Why did Indian stock market reach its fresh all-time highs today? Explained

Vinod Nair, head of research, Geojit Financial Services said, “Looking ahead, sentiment remains positive driven by optimism surrounding the upcoming budget and the government's commitment to growth-oriented policies, which suits the trend in the short to medium-term, especially for large caps supported by fair valuation."

The year ahead

This year promises to be eventful, with the Union budget, geopolitical tensions in Russia-Ukraine, Israel-Palestine, and the Taiwan Straits being some key monitorables. These, along with global interest rate movements, especially those by the US Fed and RBI, will also be keenly tracked.

In fact, a potential US Fed rate cut later in the year could be a big trigger for higher FPI flows to India, Jefferies had said in its report dated 18 June.

“Our interactions with 50+ investors in recent US roadshow, lead us to believe that the FPI flows into India would improve in 2HCY24 as clarity on Govt policies emerge post budget," Jefferies said.

So, the expectation is that higher foreign inflows would keep the momentum going in Indian equities. Jefferies said that its investor meetings in the US show a heightened interest to invest in India from global and international (non-US) mandates.

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