Sensex, Nifty up 0.5% each to hit fresh 5-mth highs amid strong global cues- QHN

Investors brushed aside the concerns regarding the outcome of the Karnataka assembly elections to end Monday’s session at a five-month high amidst favourable global cues.

The Sensex ended the session at 62,345, with a gain of 318 points or 0.5 per cent. The Nifty closed at 18,399, gaining 84 points, or 0.5 per cent. For both indices, the latest close is the highest since mid-December 2022. The Sensex is now less than 1,000 points (1.5 per cent) shy of its previous lifetime closing high of 63,284 logged on December 1.

Globally, investors were enthused after the US President Joe Biden expressed hope that a deal could be reached about the US debt ceiling. An agreement between US lawmakers continues to be the biggest concern for investors, with market pundits warning of pain ahead if no agreement is reached to raise the US government’s $31.4 trillion borrowing limit.

Analysts said the fallout of not raising the debt limit may force US lawmakers to find a common ground. Apart from the standoff in Washington, recession fears, cracks in the banking system and doubts about easier monetary policy in the near future are keeping the investors on tenterhooks.

Back home, Indian investors shrugged off the disappointment in the Karnataka elections and focused on better macro fundamentals and corporate earnings. Investors also sought relief from the fact that voters’ preferences changed in state and central elections.

“Our analysis of the seven state elections held in 2018/19 before the national election reveals that national parties gain considerable vote share in national elections vs state elections. Hence, a weak performance by BJP in the state election of Karnataka would not necessarily imply weak performance in the 2024 national election,” said a note by Jefferies.

The note warned that the central and state governments will become more populist over the next 12 months.

“We are overweight on staples with the next 6-12 month view as it not only benefits from the further strengthening of rural recovery but also margin expansion due to weaker commodity prices,” the note said.

Investor sentiment was boosted by the wholesale inflation numbers. India’s wholesale price index (WPI) inflation slipped into negative territory for the first time since July 2020. WPI for April fell by 0.92 per cent from the same month in the previous year. The decline, according to experts, was due to higher base effects and falling commodity prices. The consumer price index (CPI) inflation which eased to 4.7 in April 2023, per cent below Reserve Bank of India’s (RBI’s) upper tolerance limit of 6 per cent, also buoyed sentiment.

“Lower inflation provides room for the RBI to continue with its pause in the rate hiking cycle. The decline in WPI bodes well for the CPI in future months as lower raw material prices are passed through by the producers to the consumers, which will also help in reviving slowing consumption,” said Mitul Shah, head of research of Reliance Securities.

From now on, investors will be keenly tracking the statements by Fed officials and retail sales and industrial production data from China.

“The rotational buying in heavyweights from the key sectors is helping the index to maintain a positive tone. And, indications are in favour of the prevailing trend to continue,” said Ajit Mishra, VP-technical research, Religare Broking.