Nifty close to record high amid US debt ceiling talks. Will it climb to a new peak?

Indian stock market is trading sideways today, which might have put doubts into the mind of smart investors as Nifty and other key benchmark indices have retraced heavily every time they came close to record high in 2023. Nifty today is near 500 points away from its life time high of 18,887.60 levels but if we look at the Nifty 50 index in YTD, the 50-stock index came close to its current life-time high on four occasions (in first week of January, last week of January, mid February and second week of March) and on all these occasions, Nifty crashed from close to its record high. However, solace for such stock market investors is Bank Nifty hitting record high on Monday and hence a section of those doubtful but smart investor is soon expecting trend reversal on Dalal Street.

According to stock market experts, major reason for continuous rally at Indian stock market is heavy buying by FIIs. FIIs remained net buyers in March and April 2023 as they bought shares of worth ₹1,997.70 crore in March and ₹5,711.80 crore in April 2023. In May 2023, FIIs have remained net buyers on all trade sessions as they pumped to the tune of ₹14,963.40 crore in cash segment of the Indian equity market.

Stock market experts maintained that FIIs are expected to remain net buyers as US economy is under pressure and current US debt ceiling news is a glaring example of it. They said that US dollar has been oscillating around 102 levels after bouncing back from its one month lows. So, either the outcome of US debt talks is new currency print or accepting the negotiations, in both case, US economy will come under pressure and chances of higher inflation in near term is expected to put US Fed under pressure for interest rate hike. So, FIIs are expected to remain net buyers in near term and we can expect Nifty and other indices to continue uptrend in immediate short term.

US debt ceiling news in focus

Speaking on the possible outcome from US debt ceiling talks, Anuj Gupta, Vice President — Research at IIFL Securities said, "Chances of default is minimal and hence market is expecting two possible outcome from the US debt crisis — either acceptance of debt ceiling or new currency print. In both cases, US economy's weakness would lead to weakness in the US dollar and hence FII's buying in the Indian stock market is expected to remain unaffected in near term."

Global market watch list

On whether rally in Nifty and other Indian indices will continue or not, Avinash Gorakshkar, Head of Research at Profitmart Securities said, "When an index comes close to its record high, risk reward ratio would automatically go down but looking at current market scenario, I can say that current rally is mainly fueled by FII's buying as they have been bullish on the Indian stock market ever since weakness in the US dollar began after US Fed turned less hawkish dovish on interest rate hike. so, we need to remain vigilant about the US Fed and the US economic data that has direct connect with the US dollar movement. Current US debt ceiling may not have the direct impact on Indian markets but it will impact the US economy fir sure. Any statement from the US Fed officials dropping hint on change in stance on US Fed may trigger buying in the US dollar leading to erosion of FIIs from the Indian stock market."

Domestic factors

Expecting bull run to continue at Nifty and other Indian indices, Ganesh Dongre, Senior Manager — Technical Research at Anand Rathi said, "Nifty is not in over bought conditions. So, we can expect profit booking at current levels if the 50-stock index fails to sustain above 18,350 levels. However, if the index closes above 18,350 today then we can expect the key benchmark index to go up to 18,550 to 18,600 levels in near term. From these near term levels, we can expect some profit booking but a strong bounce back from 18,200 to 18,250 zone looks possible and in that bull trend, we can expect Nifty to climb a new peak if it fails to hit new high in current rally."

On reasons that may fuel Nifty, Sensex and other benchmark indices, Ganesh Dongre of Anand Rathi said, "After end of Q4 results season, monsoon season is going to work as domestic trigger from June and current cues suggest normal monsoon, which is expected to trigger agriculture and fertilizer stocks in near term."

Echoing with Ganesh Dongre's views, Ravi Singhal, CEO at GCL Broking said, "In Q4 results, India Inc has been able to signal that growth and demand are still intact with the national economy and hence banking, auto and infra sector is expected to fuel Indian stock market in near term."

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