However, in the second half of today’s trade, the market took a U-turn, led by gains in bluechip stocks, rise in broader markets as well as in most sectoral indices.
The Sensex jumped as much as 611 points to its day’s high of 74,070.84, surpassing the crucial 74,000 levels while Nifty advanced 156.5 points to its intra-day high of 22,502.15. Broader markets also increased by around one percent each in intra-day deals today.
While the Sensex closed 253 points higher at 73,917, the Nifty closed 62 points higher at 22,466.
M&M, JSW Steel, UltraTech Cement, Kotak Bank and Tata Motors were the top gainers on BSE while TCS, Nestle, Bajaj Finserv, Infosys and Wipro shed the most.
Overall, in May, the Indian market turned negative after three consecutive months of gains. This decline is attributed to rising US bond yields, ongoing foreign investor outflows, and investor nervousness due to global uncertainties amid the Lok Sabha elections. Experts believe that the outperformance of Chinese markets is causing the sustained selling by FIIs in India.
Going ahead, they predict that India’s underperformance is likely to change soon with clarity on election results. DIIs, HNIs and retail can turn aggressive buyers lifting the market sharply. FIIs can’t afford to miss this potential rally. The only risk is political instability after elections which appears a very low probability event now.
“Despite mixed global signals and uncertainties surrounding the US Fed, the Indian market experienced a robust recovery, largely fuelled by the outperformance of the broader market and positive Q4 earnings. Further, some index heavyweight earnings surpassed expectations, and midcap and small-cap stocks continued to exhibit buying interest during dips. Auto and consumer durables particularly stood out with strong earnings momentum,” said Vinod Nair, Head of Research, Geojit Financial Services.
Let’s take a look at some key reasons behind this sudden rally.
Positive global trends
V K Vijayakumar, Chief Investment Strategist, Geojit Financial Services, pointed out that the global market construct continues to be supportive with the US indices setting new records. The decline in US CPI inflation in April to 3.4 percent sets the stage for a rate cut by the Fed. European stock markets also steadied at the open on Friday after global indices hit fresh highs this week on hopes of interest-rate cuts in the United States and elsewhere on cooler inflation.
He also noted that the underperformance of the Indian market during the last one month is striking. While the S&P 500 is up by 5.08% and the Euro Stoxx 50 is up by 3.74%, the Nifty is almost flat. More important is the huge outperformance of Chinese stocks with a stunning gain of 17.38% in Hang Seng.
Positive sectoral trend
All sectors, except Nifty IT and Nifty Pharma, were trading in the green in intra-day deals today. The Nifty Auto index was the top performer. It jumped over 1.7 percent to hit a new high today. Nifty Metal also surged over 1.5 percent. Meanwhile, Nifty Realty also jumped over a percent whereas Nifty Bank and Nifty Fin Services gained around 0.3 percent each.
Jump in bluechips
The rise in blue-chip stocks lifted the benchmarks higher post a weak start. On BSE, M&M, Reliance Industries, Kotak Mahindra Bank, ITC, and HDFC Bank contributed the most to this rise.
M&M share price rallied over 7% in early trade on Friday after analysts remained bullish and raised the target price on the stock after the company’s strong Q4 results. M&M reported net profit growth of 31.6% year-on-year (YoY) at ₹2,038.21 crore in the fourth quarter of FY24. The company’s net profit in the year-ago quarter was ₹1,548.97 crore.
Lok Sabha polls
While the investors seem a little worried on low voter turnout, experts are confident of a Modi win. The BJP-led NDA (National Democratic Alliance) may not win 370-410 seats in the 2024 Lok Sabha election but will still surpass its 2019 tally of 353 seats, predicted brokerage firm Antique Stock Broking.
“The current debate is on the prospects of the incumbent government (polling is complete in nearly 70 percent of the Lok Sabha seats) as there has been a decline in voter turnout (from 68.6 percent in 2019 to 66.5 percent in 2024, a decline in 252 seats out of 365). Based on our analysis of voter turnout data, we believe that the incumbent party may improve its 2019 tally but fall short of the opinion poll expectation of NDA winning 370-410 seats,” said Antique.
Outlook
V K Vijayakumar noted that there are some positive global and domestic cues that augur well for the market. The decline in US inflation in April to 3.4 percent YoY and retail sales cooling off indicate a soft landing of the US economy, paving the way for rate cuts by the Fed. This favorable global construct can impart resilience to the mother market thereby providing stability to other markets.
Domestically, the improvement in voter turnout in the 4th phase of polling is positive from the market perspective since it removes some jitters associated with election results. Coming to the market trends, the net institutional buying turning positive, the sharp recovery of nearly 350 points from the lows in Nifty and the large short position in the market have the potential to aid recovery in the market. Going forward, news from the political front is likely to turn more positive. FII-heavy stocks which bore the brunt of selling are likely to witness further recovery, he said.
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.
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Published: 17 May 2024, 03:38 PM IST
