Why did the Indian stock market rise 2% this week? Explained with 5 key reasons

On Friday, May 17, the Sensex closed 253 points, or 0.34 per cent, higher at 73,917 while the Nifty 50 closed the day at 22,466, up 62 points, or 0.28 per cent. Mid and small-cap segments witnessed strong buying interest. The BSE Midcap and Smallcap index jumped 1.18 per cent and 1.39 per cent respectively. The Midcap index hit its fresh record high of 42,873.60 during the session on Friday. 

This was the second consecutive session of gains for the benchmarks. Apart from Wednesday’s session, they closed in the green every day this week.

The Sensex rose 1.7 per cent, while the Nifty 50 clocked a 1.9 per cent gain for the week ended May 17. The BSE Midcap and Smallcap indices jumped 4.4 per cent and 4.8 per cent, respectively, for the week.

The overall market capitalisation of firms listed on BSE surged to nearly 410.2 lakh crore from nearly 396.6 lakh crore last Friday, making investors richer by about 13.6 lakh crore in a week.

Let’s take a look at five key factors that boosted the Indian stock market this week. 

Why did the Indian stock market rise this week?

1. Hopes of political stability prevail

One of the biggest reasons behind last week’s market fall was nervousness over low voter turnout in the first three phases of the Lok Sabha election 2024, which was seen as a signal that the ruling coalition may not get a majority to form a government at the Centre.

With improved voter turnout in the fourth phase of the ongoing Lok Sabha election, hopes that India will see a stable government for the next five years seem to have prevailed.

Most experts do not see chances of political instability after the Lok Sabha election as they believe the BJP-led NDA will manage to retain power. Even though they say the NDA may not get seats as speculated by opinion polls, the alliance may improve its 2019 tally.

According to brokerage firm Antique Stock Broking, the NDA may not win 370-410 seats in the 2024 Lok Sabha election but will still surpass its 2019 tally of 353 seats.

Also Read: Lok Sabha election 2024: NDA may not win 370-410 seats, but will improve 2019 tally, says Antique Broking

2. Easing inflation rekindles hopes of rate cuts

The US consumer price index (CPI) rose 3.4 per cent year-on-year (YoY) in April after a 3.5 per cent rise in March. The lower-than-expected rise in inflation prints rekindled hopes that the US Fed will cut rates in the second half of the year.

While several Fed officials have reiterated their stance of waiting for a sustained decline in inflation before initiating rate cuts, the market still clings to hopes that such cuts will commence this year, even if they prove to be shallow.

Also Read: US inflation resumes downward trend, eases to 0.3% in April; core CPI cools for first time in 6 months

3. Hand of domestic investors

Even though foreign portfolio investors (FPIs) have been selling Indian equities in May, sustained buying by domestic institutional investors (DIIs) and retail investors have underpinned the market.

In the cash segment, while FPIs have sold Indian equities worth over 37,000 crore, DIIs have bought Indian equities worth more than 32,000 crore as of May 16 this month.

FPI money has been flowing from the Indian market to the Chinese market this month due to the Chinese market’s relatively cheaper valuation. 

Moreover, experts say FPIs tend to sell in the Indian market before general elections but generally return after the election outcome.  

4. Underlying sentiment remains positive

Experts suggest that Indian investors maintain a positive outlook on the medium to long-term prospects of the Indian market.

They believe that policy reforms will persist regardless of which party comes to power after the elections, ensuring that India remains one of the fastest-growing economies for the foreseeable future.

The positive outlook of the market riggers buying after every correction.

5. Monsoon tailwinds

The Indian Meteorological Department (IMD) said that this year, the Southwest Monsoon is likely to set over Kerala on May 31. The weather department works with a statistical model error of ± 4 days, which means Monsoon 2024 can start either four days before or four days after May 31.

Also Read: Weather update: IMD predicts heatwave, rainfall in THESE regions; monsoon likely to hit Kerala on May 31

India is expected to experience above-normal monsoon rainfall this year as the El Nino weather pattern shifts to neutral and mild La Nina conditions develop by August-September.

Also Read: Weatherman sees a very wet monsoon this year

This is positive for the Indian economy as India’s agri sector heavily depends on monsoon rains.

“The India Meteorological Department (IMD) has said that the southwest monsoon onset over Kerala is expected on 31st May. The IMD’s expectation of an above-normal monsoon will be positive for India,” said Shrikant Chouhan, the head of equity research at Kotak Securities.

Near-term outlook of the market

According to Chouhan, the uptrend continuation formation on daily and intraday charts indicates further upside from the current levels.

He said for the trend-following traders now, 22,350/73,450 would act as a key support level. As long as the index is trading above the same, the bullish formation is likely to continue.

“On the higher side, the market could move up to 22,550-22,575/74,200-74,300. On the flip side, a downtrend below 22,350/73,450 would be vulnerable. Below that, traders may prefer to exit from the trading positions,” said Chouhan.

Kunal Shah, Senior Technical and derivative Analyst at LKP Securities pointed out that the Nifty index continued its momentum but failed to surpass the 22,500 mark, where the highest open interest is built up on the call side. For the index to achieve its all-time high soon, it needs to break this level decisively.

“The downside support is placed at 22,300, and dips towards this support level should be seen as an ideal opportunity to initiate long positions,” said De.

Read all market-related news here

Disclaimer: The views and recommendations above are those of individual analysts, experts, and brokerage firms, not Mint. We advise investors to consult certified experts before making any investment decisions.

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Published: 17 May 2024, 03:32 PM IST

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