Sensex soars 3,000 points in 5 sessions; key reasons why

Despite weaker-than-expected Q2 earnings and disappointing GDP data, Indian equity markets are on a bull run. Over the past five trading sessions, the Sensex has surged nearly 3,000 points, crossing the 82,000 mark, while the Nifty breached the 24,800 level. The rally, which began around the time of the Maharashtra assembly election results, is now being driven by renewed buying interest from foreign institutional investors (FIIs).

On Thursday, the Sensex saw a sharp recovery, climbing over 1,300 points from its intraday low to hit a high of 82,317.74 before settling 809.53 points higher at 81,765.86. Meanwhile, the Nifty jumped 390 points to its day’s high of 24,857.75. It ended 229 points higher at 24,696.45.

“The market experienced a sharp recovery from the day’s low, closing with strong gains. A positive turnaround from FIIs over the past few days, fueled by expectations of a dovish monetary policy from the RBI, supported sentiment. Additionally, stability in the November service PMI data, despite rising inflation, indicates steadiness in business activity,” said V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services.

“While the rally is supported by robust fundamentals, high valuations warrant caution. In a bull market, valuations can get stretched, and it’s wise to remain vigilant,” Vijayakumar added.

Key reasons behind the rally

US Markets Hit Record Highs: The bullish sentiment in India was aided by the US markets, where the Dow Jones Industrial Average closed above the 45,000 mark for the first time. This rally is driven by a combination of strong economic growth and declining inflation, which have provided a favorable environment for equities.

Federal Reserve Chair Jerome Powell’s recent remarks further fueled optimism. “The US economy is in remarkably good shape,” Powell stated, signaling a cautious approach to future rate cuts while acknowledging the economy’s resilience. However, concerns over stretched valuations persist, both in the US and India.

FPI Inflows Bolster Indian Markets: Foreign portfolio investors (FPIs), who had sold Indian equities worth ₹1.15 lakh crore in October and November, have turned net buyers in December, infusing over ₹12,000 crore into the markets. This shift in FPI sentiment is particularly beneficial for large-cap stocks.

“FII inflows are a positive sign, especially for large caps. The strength in banking stocks could propel the Bank Nifty towards new all-time highs, potentially driving the Nifty higher as well,” noted Vijayakumar.

European Markets Hold Steady: European stocks also remained resilient, with the pan-European STOXX 600 extending its gains for the sixth consecutive session. France’s CAC 40 edged up by 0.1 percent, in line with regional peers, as investors anticipated political shifts following a vote to topple Prime Minister Michel Barnier’s government.

Hopes of Rate Cuts from RBI: On the domestic front, market participants are eagerly awaiting the Reserve Bank of India’s (RBI) monetary policy meeting on December 6. Analysts at Nomura expect the RBI to initiate an aggressive rate-cutting cycle to counter the economic slowdown.

Nomura predicts a 25 basis point cut in the repo rate, accompanied by a 50 basis point reduction in the Cash Reserve Ratio (CRR). The repo rate cut is expected to address the ongoing demand slowdown, while the CRR cut could inject much-needed liquidity into the system.

Geopolitical Tensions Ease: Easing geopolitical tensions have also contributed to the positive market sentiment. Ukrainian officials are engaging in high-level talks with the incoming Trump administration, aiming to resolve the ongoing conflict with Russia. This development has provided a sense of relief to global markets, which have been wary of escalating geopolitical risks.

Outlook

With the Sensex and Nifty hitting new milestones, market sentiment remains upbeat. However, experts advise caution amid high valuations and potential macroeconomic challenges. The anticipated rate cuts by the RBI and easing global tensions could provide further impetus to the rally, but investors are advised to remain vigilant and consider any dips as buying opportunities.

As the year draws to a close, the focus will remain on central bank policies, global economic trends, and geopolitical developments, all of which will play a crucial role in shaping market direction in the coming months.

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.