Sensex, Nifty surge almost 2%: From gains in RIL, HDFC Bank to strong global cues, 4 key factors driving the rally

Indian benchmark indices Sensex and Nifty rallied almost 2 percent each on Monday after ending the last 2 weeks in the red, down 1.2 percent each. Today's gains come on the back of buying in strong index heavyweights, a rise in Asian peers, as well as hopes of a US Fed rate cut and a populist budget due later this week.

The BSE Sensex soared 1,309.55 points or 1.8 percent to its intra-day high of 72,010.22 while the Nifty50 jumped 410.65 points or 1.9 percent to its day's high of 21,763.25.

The market exhibited a clear bullish bias, as 40 out of the Nifty stocks were trading in positive territory, while only 10 were in the negative zone. The top gainer was ONGC, up almost 9 percent, followed Reliance Industries, up 6.8 percent. Coal India, Adani Enterprises, Adani Ports, and Hero Moto also advanced over 4 percent each. Meanwhile, the top losers were Cipla, ITC, Infosys, LTIMindtree and Bajaj Auto.

Read here: Reliance share price hits record high, m-cap crosses ₹19 lakh crore

While the overall sentiment was robust, the selling by foreign portfolio investors and a rise in crude oil prices capped further upside.

"Indian equity markets rose sharply today on the back of great expectations from the upcoming budget and strong cue from other Asian markets. Private sector banks in particular have driven the market rally as DII's continue value picking at current levels. We believe that the volatility will continue in the coming days as the results season unfolds. The market will also be keenly looking at the upcoming FED meet to see any change in body language, inflation expectations and rate cut cues", said Manish Jain, Head - Fund Management, Centrum.

Sensex ended the day 1240.90 points or 1.76 percent higher at 71,941.57 whereas Nifty settled 385 points or 1.8 percent higher at 21,737.60.

Let's take a look at key factors that led to today's rise:

Strong buying in index heavyweights

Index heavyweights Reliance Industries and HDFC Bank were the top contributors on Sensex in morning deals today. RIL was the top Sensex gainer. It jumped over 7.2 percent to its record high of ₹2,905 in intra-day deals today. Meanwhile, HDFC Bank also gained 2 percent to 1462.85 on BSE after RBI approved LIC to raise its ownership in the country's largest private sector lender. The central bank allowed LIC to acquire an additional 4.8 percent stake in HDFC Bank, and the stake could be raised to a maximum of 9.99 percent by January 24, 2025. Currently, LIC owns a 5.19 percent stake in HDFC Bank as of December 2023.

"Markets have bounced back strongly after the last two weeks of correction on the back of RELIANCE which has recorded more than 5% gains in the day so far. Technically 21,750 is a strong resistance for Nifty around which we expect the current rally to cool off. Supports are placed at 21,137 and 20,870 on the downside," said Rahul Sharma, Director, Head - Technical & Derivatives Research at JM Financial Services.

Read here: Stocks to buy this week: Bajaj Auto, Inox Wind, PNB among 12 technical picks; do you own any?

Broad-based gains

Gains in the Indian market were also broad-based with all sectors trading in the green. The market breadth also favored gainers as nearly two stocks rose for each one that fell.

Sectors including Banks, Financial Services, Auto, Metal, and Oil and Gas rose between 1 and 4 percent each. Meanwhile, the Nifty Midcap and Smallcap indices were also up over 1 percent each.

“The latest breakout in the oil and gas index has propelled the sector into positive territory. The recent consolidation in the Nifty Oil and Gas index concluded with an upside breakout, indicating an increased optimism in the space that may persist in the coming days. Therefore, the sudden surge in energy stocks might continue to bolster the headline index in the short term,” said Rupak De, Senior Technical Analyst, LKP Securities.

Strong global markets

Chinese equities led a rally in Asian stocks to start the week after regulators took new steps over the weekend to support the market. Oil climbed after a step-up in Middle East violence, as a missile attack by Yemen's Houthi group caused a fire on a fuel tanker in the Red Sea, while three US troops were killed after a drone attack in Jordan. Hong Kong's Hang Seng jumped 1.4 percent, and a sub-index of mainland property shares surged 3.6 percent after China's securities regulator said on Sunday that it will fully suspend the lending of restricted shares.

Read here: Budget 2024: Market moved less than 1% in just 7 of last 24 budget sessions

Regional stocks also started the day on a firm footing, and extended gains after the Hong Kong open, with Japan's Nikkei gaining 0.8 percent and South Korea's Kospi advancing 1.2 percent, while Australia's stock benchmark added 0.4 percent. Mainland China bluechips, however, were little changed after seesawing in early trade.

US Fed commentary

While a rate cut is not expected in the January Fed meet, experts remain optimistic, expecting a dovish commentary in the upcoming US Fed policy meet on the back of continued moderation in US inflation.

Going into this week’s two-day policy meeting, which wraps Wednesday afternoon in Washington, investors are assigning roughly even odds to the prospect that the US central bank will start lowering borrowing costs at its next decision in March.

Read here: BPCL share price trades positive ahead of Q3FY24 results. Buy or wait?

On one hand, inflation numbers continue to surprise to the downside. The Fed’s preferred gauge decelerated to 2.9 percent in December, crossing below 3 percent for the first time since early 2021, according to data published Friday. On the other, consumer spending continues to be surprisingly robust. It’s undoubtedly getting a boost from the downdraft in inflation, but the strength still may keep some worried that price pressures could mount once again.

“The stage is set for the Fed to take steps toward cutting rates in coming months. We expect the Fed to begin lowering the federal funds rate target range in March as it attempts to stick a soft landing," said Bloomberg Economists Stuart Paul and Estelle Ou.

Expert view

Sonam Srivastava, smallcase Manager, Wright Research – Founder

The surge in the Nifty 50 can be largely attributed to investor optimism in anticipation of the upcoming interim budget, where significant allocations are expected in key sectors like infrastructure and energy. This optimism is not unfounded, as government spending in these areas typically signals robust growth prospects, thereby attracting investor interest. Additionally, specific sectors such as defence and railways are experiencing a surge, likely due to expectations of targeted fiscal stimulus. This sector-specific rally is a strong contributor to the overall index performance, as these sectors form a substantial part of the Nifty 50.

Moreover, there's a noticeable rally in cyclical stocks, driven by the broader economic outlook and expectations of growth, which often leads to increased investor confidence in these market segments. The role of domestic investors in this scenario is also crucial. Their increased buying activity, possibly spurred by positive market sentiment and the anticipation of strong future earnings, is creating an upward momentum in stock prices.

While some sectors like IT, FMCG, and Pharma are underperforming, their impact is overshadowed by the gains in other sectors. It's essential to recognize that stock market movements are the result of a complex interplay of various factors, including economic indicators, policy expectations, global trends, and investor behavior. In this case, the collective sentiment seems to be tilting towards optimism, driven by expectations from the interim budget and the consequent potential growth in key sectors.

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 decision.