Indian benchmark equity indices, Sensex and Nifty scaled fresh record highs on Friday, buoyed by upbeat investor sentiment amid strong global cues. The Sensex tested 52,641.53 and the Nifty scaled a record high of 15,835.55 in the morning trade.
Broader indices, the BSE midcap and smallcap indices, too, touched their all-time highs of 23,045.01 and 25,248.88.
So far this year, the Sensex has gained 10 percent, while the Nifty has returned over 12 percent. The overall market capitalisation of BSE-listed companies is now more than Rs 231 lakh crore.
“The stock market is solely focused on the future. Hopes of a quick economic revival post unlock and expectation of a large number of the adult population vaccinated in 2021, are keeping markets excited. Q4 FY21 earnings have been encouraging, even after adjusting for the low base of March 2020,” said Amar Ambani, Senior President and Head of Research—Institutional Equities, Yes Securities.
The broader market is very healthy, Ambani said, while adding that is very likely that the top 10 heavyweights of the Sensex, which have been dormant for some time, will begin to participate.
“Our target for Sensex is 60,000 by December 2021,” he said.
Here are the key reasons behind the market rally:
Sustained fall in fresh COVID-19 cases
The daily COVID-19 count in India
remained below the one-lakh mark for the fourth consecutive day with the country reporting 91,702 fresh cases. The death toll climbed to 3,63,079 with 3,403 daily deaths.
The active cases further declined by 46,281 to 11,21,671, while recoveries rose by 1.34 lakh. The national COVID-19 recovery rate has improved to 94.93 percent.
Easing restrictions in states
Investor risk appetite improved as many states eased local restrictions as the deadly second wave of COVID-19 ebbs. Hopes of better demand going ahead boosted market sentiment, experts said.
“As states ease restrictions gradually in June 21, we expect the demand environment to get better which can have a positive impact on the markets. The further direction of the domestic markets would depend on the monsoon, opening up of the economy in a phased manner and the pace of vaccination going forward,” said Siddhartha Khemka, Head—Retail Research, Motilal Oswal Financial Services.
Positive global cues
Gains in global equity markets amid a fall in US bond yields after key inflation data in the US also supported the sentiment.
The US bond yields dipped to three-month lows and a broad gauge of Asian shares rose on Friday as investors looked past rising US consumer prices and focused on one off-factors which suggested higher inflation could be short-lived, said a Reuters report.
Some economists say the rise in the US consumer price index reflected short-term adjustments related to the reopening of the economy, and many investors appear confident that the Federal Reserve is deftly handling a rebound in economic growth—even as questions remain about how it defines “transitory’.
Meanwhile, European stocks extended gains for the sixth session on Friday, buoyed by hopes that major central banks will stay accommodative despite signs of rising inflation, while gains in miners and travel firms supported regional indexes.
After two consecutive months of outflows, the foreign institutional investors (FII) have turned net buyers so far in the month of June. The total FII inflows in the equity segment stand at Rs 14,078 crore this month, as per depositories’ data.
Meanwhile, net inflows into equity and equity-linked schemes in India jumped nearly threefold over the preceding month to Rs 10,083 crore in May, the highest since March 2020, according to data released by the Association of Mutual Funds in India.
Hopes of strong economic growth
Analysts believe the market is also riding on hopes of better-than-expected economic growth after the COVID-19 cases come under control and the restrictions are lifted.
The Reserve Bank of India
(RBI) now projects India’s real GDP to grow at 9.5 percent in the financial year 2021-2022, lower than its earlier forecast of 10.5 percent growth during the year.
RBI Governor Shaktikanta Das, in his latest monetary policy statement, had said that the strengthening global recovery should support the export sector.
“Domestic monetary and financial conditions remain highly accommodative and supportive of economic activity. Moreover, the vaccination process is expected to gather steam in the coming months and should help to normalise economic activity quickly,” he said.
Technical factors indicate Nifty heading towards 15,900-16,000 levels and experts suggest any dips in the market could be utilised as a buying opportunity.
“A buy on dips is a better strategy to adopt as opposed to buying at the current market level. This is because the risk is to reward ratio is more favorable when traders accumulate positions on dips. The risk is lower and the targets are higher. The index has good support at the 15,600 levels and until we do not disrespect this level on a closing basis, the overall trend remains bullish,” said Manish Hathiramani, Proprietary Index Trader and Technical Analyst, Deen Dayal Investments.
Other than these, abundant liquidity in the system, hopes of another stimulus measures and better than expected March quarter corporate earnings also lifted the equity market.