Nifty 50 tops 23k mark; can Indian stock market sustain gains? Experts weigh in

Stock market today: Nifty 50, the benchmark index of the Indian stock market, hit the coveted 23,000 mark for the first time in intraday trade on Friday, May 24. Nifty 50 opened at 22,930.75 against its previous close of 22,967.65 and rose by 0.3 per cent to hit its fresh all-time high of 23,026.40.

However, the index quickly erased all gains and slipped into negative The 30-share pack Sensex also hit its fresh all-time high of 75,636.50 during the session but failed to hold altitude on profit booking.

The Sensex closed 8 points lower at 75,410.39. The Nifty 50 ended the day 11 points lower at 22,957.10.

Even though experts remain positive about the Indian stock market's medium-to-long-term growth prospects, they believe it will remain volatile in the short term, given its high valuation and election-related caution.

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In the previous session, the Nifty 50 closed 370 points, or 1.64 per cent, higher at 22,967.65 with as many as 44 stocks in the green. The Sensex closed 1,197 points, or 1.61 per cent, higher at 75,418.04 with 27 stocks in the green.

Experts observed that the rally in the Indian market in the previous session was mainly driven by the buying by FII (foreign institutional investors).

"The rally in the Sensex yesterday was triggered mainly by the sudden shift in FII trade from sustained sellers to big buyers resulting in buying of ₹4671 crores. The massive short-covering caused by this sudden change in FII trade contributed to the sharp rally," said V K Vijayakumar, Chief Investment Strategist, Geojit Financial Services.

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Vijayakumar pointed out that the change in FII stance has been caused by the underperformance of the Hang Seng index, which has been down 4.1 per cent during the last five days.

"The outperformance of the Hang Seng had led to the 'sell India, buy China' trade during the last month. It appears that this trade is over and that’s why FIIs have again turned buyers in India," said Vijayakumar.

Moreover, the Reserve Bank of India (RBI)'s record ₹2.11 lakh crore dividend to the Centre for FY24 boosted market sentiment. The robust RBI dividend is positive for the economy as it will help the government meet its fiscal deficit target for FY25.

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Can the market sustain gains?

Some experts believe the market benchmarks may sustain gains while the mid and smallcap indices may see some selling after the Lok Sabha election outcome on June 4.

"The gains in the Nifty 50 and the Sensex are sustainable with political stability at the Centre. Both the Sensex and the Nifty 50 are trading at 24 times one-year trailing PE (price-to-earnings ratio). Since they have severely underperformed the small and midcap space, the benchmarks have relative valuation comfort," said G. Chokkalingam, founder and head of research at Equinomics Research Private Limited.

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Nifty 50 is now up about 25 per cent from its 52-week low level of 18,333.15 which it hit on May 26 last year. 

On the other hand, the Nifty Midcap 100 index is up 58 per cent, while the Nifty Smallcap 100 index is up about 71 per cent from their respective 52-week low levels.

Nifty 50 stocks represent the largest and most influential companies across various sectors in India, driving the nation's economy. Given India's robust economic growth outlook, these companies are poised for significant expansion, which is likely to be reflected in their rising stock prices.

"The prospects of robust economic growth, relatively cheaper valuation, and FII buying will help the benchmarks sustain gains. FIIs sit on the sidelines ahead of elections, and they come back after the election outcome. FIIs are likely to come back in a big way," said Chokkalingam.

Pankaj Pandey, the head of retail research at ICICI Direct believes the rally is sustainable.

"Overall, we believe this rally is sustainable. With political stability after the elections, our year-end target for Nifty 50 is 25,000. The market is discounting political stability. If the rally continues how it is panning out, the actual election outcome may be non-even for the market if it is on expected lines," said Pandey.

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