Nifty 50 : The Indian stock market has been on an unstoppable rally since the US Federal Reserve’s decision to deliver a supersized interest rate cut of 50 basis points (bps) last week. A move, which went beyond market expectations, fuelled optimism across global markets, as that seemed to give them renewed appetite for risk. The good sentiment at the international markets spilled over to India too where the major indices, Nifty 50 and Sensex hit history with foreign investment support through strong macroeconomic numbers.
Since the rate cut, the Nifty 50 has continuously made new highs in almost all sessions. However, the BSE Sensex, tracking 30 of India’s largest companies, for the first time this week crossed the historic 85,000-point mark and this is a hallmark of the strength of the ongoing rally. Several factors, including sustained foreign fund inflows into Indian equities, solid corporate earnings and robust economic data, have contributed to this extra- ordinary market performance.
A Volatile Session Despite an aggregate emphatic rallying trend, Monday witnessed an unusual session, though still a positive one at 60.50 points over 83,974.50 level.
It was a volatile day for the Indian stock market on Wednesday. Having started on a marginally weaker note, both Nifty 50 and Sensex had a drop of as much as 0.2 percent in early trade. Investors remained cautious amid global uncertainty stemming from tensions in the Middle East and fears of a rise in oil prices, which could affect inflation and corporate profitability. The market recovered from the early dip and ended the day on a positive note with good change in the last hour of trade, closing the Nifty 50 at 26,004.15, which saw a gain of 0.25%. On the other hand, Sensex finished the session with a 0.3% gain, touching an all-time high of 85,169.87 points.
During the day, Sensex gained 333.38 points, or 0.39%, and made a high of 85,247.42 points before staging a modest retreat to close on the market. It was indeed the first time that the Sensex closed above the psychological level of 85,000, which is a big deal for the Indian stock market. The Nifty 50, too, marked a new high by hitting the 26,000 mark on the last of the session. That was aided by the latter half of banking and power stocks, which reversed the early losses and ultimately turned what began as a lackluster day into the best of all time.
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Nifty 50 : Global Factors at Play
Much of the recent success of the stock market is due to global factors, particularly related to the US Federal Reserve. The bold cut in rates by the Fed to shore up the US economy in the light of inflationary considerations and slowing growth sent a shockwave in the global financial markets. This cut in turn increased the risk appetite among investors, leading to a spurt in flows into emerging markets like India, which offer better returns.
More than that, the market has been on the lookout for comments by US Federal Reserve Chair Jerome Powell that will flesh out the Fed’s interest rate policy going forward. Last but not least, the calendar lists the latest inflation data from the US to be released later this week. These are likely to be important factors guiding sentiment in the short term as these will give critical insight into the health of the global economy as well as indicate the direction of interest rates going forward.
Sector-wise Performance: Banking, Power and Metals Performed Well
Nine of the thirteen major sectoral indexes advanced yesterday, continuing to show the breadth of the rally. “Biggest gainers are banking and power. These outperformed because investor sentiment was positive for these, expecting lower interest rates,” according to another financial analyst. “Of course, power has benefited from increased demand as energy needs are rising.”.
The metal industry, also looked promising with commodity prices experiencing a rebirth worldwide. This growth in the metal stocks has primarily been attributed to the increase in the prices of main raw materials in the form of steel and copper due to a greater demand by the construction industry as well as various other industries in manufacturing. This trend is most likely to further expand the profitability side of companies in the metal sector.
Several analysts believe that the recent sell-off in IT stocks has been such that it can be considered a buying opportunity, especially with strong fundamentals and good long-term growth prospects. The IT sector had some correction on profit-taking pressure, but their stocks remained high after the strong performance at the earlier parts of the year.
Midcap and smallcap stocks, which have seen good rises over the past few months, remained a bit under the hammer in yesterday’s trade. Profit booking in the space pulled down the market breadth as investors began to shift their focus from growth sectors to defense sectors like banking and power.
Expert Opinion: Riding Out the Wild Ride
The stock market performed averagely over the past week, leaving many experts concerned. The pros had an opinion on the recent trend of the market and the coming days.
The market was range-bound most of the trading session with not much movement in either direction. However, towards the end a small rally did occur due to the unwinding of short positions ahead of the monthly expiry of derivative contracts and dragged both Sensex and Nifty 50 above its key psychological levels of 85,000 and 26,000 points respectively, said Prashanth Tapse Senior Vice President (Research) at Mehta Equities Ltd.
However, the strong finish warned that this does not necessarily mean smooth sailing ahead for the broader market, at least for a while, given the global uncertainty and rising Middle East tensions. Short term technical outlook as of now remains bullish too with Nifty 50, on all charts, forming higher high and higher low patterns. For instance, Tapse remained careful about the psychological support area around 25,750. He feels the immediate target for the Nifty is now 26,250 but volatility shoots up ahead due to global events.
On Wednesday, the market turned rather volatile, moving more often from gains to losses, but the late rally helped carry the upward trend of the market, and it was Nifty 50 that ended at near-day highs at 26,004.15 points, according to Religare Broking Ltd. research senior vice president, Ajit Mishra.
Mishra believes that sectoral performance was mixed, which saw the best in action in banking and power stocks being barely offset by weakness in midcap and smallcap stocks. He maintained a positive outlook on the overall development and warned investors to maintain a bullish stance but remain focused on stock selection in line with sectoral trends.
Still, Mishra believes that rate-sensitive sectors like banking and power would continue to do well in an otherwise agreeable interest rate environment. The metal sector also stays on strength with long-term underlying healthy global commodity demand. Whatever correction the IT stocks witnessed recently will make it a good buying opportunity for investors who may have a longer-term view. Mishra recommended traders make specific decisions in terms of positioning, playing to strengths in sectors, and remaining watchful concerning global risks.
Outlook: Cautious Optimism Amid Global Uncertainty
With these steady positives driving the Indian stock market forward, the medium-term outlook remains quite bright as long as foreign fund inflows continue to be strong; corporate earnings remain healthy; and domestic economic conditions remain favorable. However, the markets must be ready to bear higher volatility driven by worrying global headwinds, of which rising geopolitical tensions and oil price upswings are a few examples.
The short-term will be driven by market anxieties over policy decisions as well as US inflation data coming out from the Federal Reserve. Additional support to the rally, of course, is if the Fed goes dovish, throwing further hints about cut or a hold on the hikes. Signs of persistent inflation, though, may lead to fears about a tightened monetary policy, which should weigh on the risk assets like equities.
In short, while the Indian stock market is still basking in the euphoria of sheer bullish momentum, there is no reason why investors should become complacent and wait for headwinds. It will be a selective exposure to stocks in areas that are witnessing sectoral trends as well as a keen awareness of global developments that will be crucial for navigating the market in weeks to come.