The Indian equity benchmarks soared to unprecedented heights on Monday. The catalysts were the recent state election results, which further built hopes among investors of continuity of government at the Centre after the parliamentary polls next year.
The bulls, already invigorated by the prospect of imminent rate cuts by the US Federal Reserve, bought shares across the board, propelling the combined market cap of all BSE-listed firms by Rs 5.8 trillion.
The Sensex climbed 1,384 points (a 2.05 per cent increase) to close the session at 68,865; the Nifty50 rose by 419 points (a 2.1 per cent gain) to end at 20,687. For both indices, this marked the most significant single-day gain in nearly 14 months. Moreover, the Sensex and the Nifty50 reached fresh highs on both intraday and closing bases.
The Bharatiya Janata Party (BJP) emerged victorious in three state elections by retaining Madhya Pradesh and wresting Chhattisgarh and Rajasthan from the Congress. The BJP’s performance surpassed expectations, as the elections were widely considered a close fight in three states.
The election results assuaged investor concerns about whether a poor showing by the ruling party would heighten the risk of more fiscal populism. “The equity market looks at how money is being spent effectively, and the sustainability by way of policymaking,” said A Balasubramanian, managing director & CEO, Aditya Birla Sun Life AMC. “The market reaction is a clear endorsement of growth and not driven by freebies.”
He further said: “The valuation picture is not concerning as long as the cost of capital does not rise, the interest rate trend remains the same, and there is no doubt on the growth outlook of India.”
The surge in the market capitalisation of all listed stocks on the BSE marked the highest one-day gain since May 17, 2022, when the state-owned Life Insurance Corporation (LIC) was listed.
Pranav Haridasan, MD & CEO, Axis Securities, said: “The assembly election results have thrown a positive surprise for the markets, with the markets now assigning a greater probability of continuation of existing government policies beyond 2024. This development removes a significant short-term overhang from the markets. We believe that in the near term, the markets are likely to see strong interest, led by a rebound in industrial growth and a benign interest rate trajectory.”
Hopes of peaking rate hikes and robust macro numbers have kept sentiment buoyant in recent weeks. Last week, India’s market cap breached the $4 trillion mark for the first time, and the Nifty50 surpassed its record close made in September before dropping nearly 5 per cent as bond yields in the US climbed to 5 per cent. With a sharp retreat in US yields, global markets logged their best monthly advance in three years in November.
While India underperformed the global markets in November, it’s playing catch-up after a better-than-expected GDP growth figure for the September quarter prompted economists to raise growth forecasts. During the September quarter, the Indian economy expanded by 7.6 per cent, beating the Reserve Bank of India’s estimate of 6.5 per cent. Meanwhile, the purchasing managers’ index (PMI) for manufacturing rose to 56 in November, up from 55.5 in October. A figure above 50 indicates expansion.
Analysts suggest that the sustainability of Monday’s rally will hinge on continued buying by institutional investors. “There is consensus on regime and policy continuity in 2024. And this will attract foreign portfolio investor (FPI) flows,” said UR Bhar, co-founder of Alphaniti Fintech. “However, the sustenance of this rally depends on follow-up buying by institutional investors and whether general elections will follow a similar pattern. But at any time when the market goes too fast, there will be enough people to sell. And we are not far away from a bit of profit-booking.”
On Monday, FPIs bought shares worth Rs 2,073 crore, while domestic institutions pumped in nearly Rs 5,000 crore.
The market breadth was favourable, with 2,373 stocks rising and 1,480 declining. Banking stocks rose sharply, with the Bank Nifty index hitting a new high after rising 3.6 per cent to close at 46,431.
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