Indian equity markets continued their record-breaking streak on Monday, marking the fifth consecutive session of gains. This surge comes in the wake of the BJP's impressive victories in three out of five state elections, instilling confidence among investors regarding the government's sustained majority for a third consecutive term. Additionally, factors such as increased foreign investor inflows, a decline in US bond yields, robust GDP growth, and the anticipation of no further rate hikes have contributed to the positive momentum.
The Nifty benchmark surged by 334.6 points, reaching a new high of 20,602.50, while the Sensex climbed 1,106.6 points, hitting a record high of 68,587.82. This marked the Sensex's first peak since September 15, while the Nifty achieved a new high in the preceding session on December 1.
In just two sessions of December, Indian markets have witnessed a growth of over 2 percent. Moreover, mid and small-cap indices also reached fresh record highs during the session, with the Nifty Midcap 100 index hitting 44,148.90, up 1.7 percent, and the Nifty Smallcap 100 index scaling its new peak of 14,514.90, up 2 percent in intraday deals.
Several factors have contributed to this market surge:
BJP Victory in State Elections:
The BJP secured victory in three out of four states that recently underwent polls, surpassing exit poll predictions. The party retained Madhya Pradesh and regained Rajasthan and Chhattisgarh, instilling confidence in political stability and a reform-oriented government.
Strong FPI Inflows:
Foreign portfolio investors turned net buyers in November after two months of outflows. Declining US treasury yields and a softer dollar contributed to foreign fund inflows into emerging markets like India.
Strong Domestic Macro Trends:
India's Q2 GDP grew by 7.6 percent, surpassing expectations and highlighting robust domestic demand, making the country an attractive destination for foreign capital inflows.
Hopes of No More Rate Hikes:
Anticipation that the central bank will maintain the current interest rates has supported market sentiment. The market expects the RBI to continue its current stance due to India's retail inflation remaining above the 4 percent target.
Positive Global Cues:
Global markets experienced a bullish trend, with easing inflation expectations in the Eurozone. The US market witnessed significant rallies in November, and US 10-year bond yields and the dollar index cooled off, contributing to positive sentiment.
Technical View:
Aditya Gaggar, Director of Progressive Shares, anticipates a strong start to the December series, with a V-shaped breakout pattern suggesting a target of 21,500 for Nifty. An inverted Head and Shoulder breakout in BankNifty, with a target of 46,300, further supports the bullish sentiment.
Anand James, Chief Market Strategist at Geojit Financial Services, notes that while Nifty's weekly RSI is heading into overbought levels, momentum remains strong. VIX, showing signs of bottoming out, indicates a potential 20% rise in volatility, making the correlation between Nifty and VIX more meaningful.
