BJP's Triumph Takes Nifty, Sensex to Record Highs; What’s Next?

Riding the Wave of Political Stability: Nifty, Sensex Hit Unprecedented Highs

On December 4th, the Indian stock market witnessed a gap-up opening, with the Nifty 50 and Sensex reaching unprecedented levels, driven by investor enthusiasm over the BJP's significant electoral success in three key Hindi Heartland states. By 9:30 AM, the Sensex had surged by over 1,000 points, a gain of 1.5%, reaching 68,525, while the Nifty also ascended by more than 300 points, or 1.5%, approaching 20,600. 

Notably, the Sensex attained a record high of 68,918.22, and the Nifty reached a new historic peak of 20,702.65 in intraday trade, before closing at 68,865.12 and 20,686.80, respectively.

Here are five factors that are fuelling this rally:

1. The BJP Effect: A Catalyst for Market Confidence

The market's euphoria is largely attributable to the BJP's impressive performance in Rajasthan, Madhya Pradesh, and Chhattisgarh. This political triumph has quelled concerns over fiscal imprudence, thereby bolstering market stability. Even as the Congress made strides in Telangana, the market's focus remained steadfast on the BJP's decisive wins.

These wins can be viewed as an early indicator for the 2024 general elections. With the three states holding a combined 66 seats, expectations are high for a strong BJP performance in the forthcoming general election.

2. India's Economic Pulse: Positive Indicators Fuel Growth

India's economic condition seems strong, as demonstrated by a significant 15% year-on-year increase in the Goods and Services Tax (GST) collections for November, amounting to Rs 1.68 lakh crore, suggesting a possible annual increase. 

Additionally, India's Gross Domestic Product (GDP) growth rate of 7.6%, surpassing the Reserve Bank of India's (RBI) prediction of 6.5%, along with an upbeat US market, has further enhanced the optimistic outlook in Indian financial markets.

3. Global Optimism 

The global market scenario is also playing a favourable role. The dip in oil prices, US bond yields, and the dollar index are contributing factors to this upbeat mood. Wall Street continued to trade higher, with the Dow Jones notching up 2.42% returns over the week. The S&P 500 and Nasdaq recorded their largest monthly gains since July 2020, at 5.42% and 6.13% respectively. 

In Europe, the DAX saw a 2.3% rise, the CAC gained 0.73%, the FTSE 0.55%, and the Pan-European Stoxx 600 grew by 1.03%. 

However, Asian markets did not mirror this bullish trend. The Hang Seng fell by 4.06%, the Shanghai Composite declined by 0.31%, and the Nikkei dropped by 0.58%.

4. Anticipating Interest Rate Cuts: A Global Perspective

With inflation cooling off globally, investors are anticipating that the US Federal Reserve will pause its series of interest rate hikes at its upcoming meeting on December 12-13. Moreover, global market players are optimistic that the Federal Reserve might begin reducing rates by the middle of 2024, which is expected to boost market sentiment. 

Similarly, the RBI is also anticipated to maintain its current interest rates during its meeting scheduled for December 6-8.

5. The FII Factor: A Return to Indian Equities

Foreign Institutional Investors (FIIs) have reversed their stance, now actively investing in Indian equities. Following three consecutive months of selling, FIIs returned as net buyers towards the end of November, purchasing Indian equities worth Rs 5,795.05 crore. This trend has extended into December, with FIIs making purchases worth Rs 1,589.61 crore in the first session of the month. 

Further, the rollover of positions by FIIs to the December Futures & Options (F&O) series indicates a notable decrease in short positions and an increase in long positions, signalling that the covering process has begun and might take some time. This suggests that the market rally is not over yet. This renewed interest, evident from the significant investments in December, is a promising sign for the market's trajectory.

Charting the Future: What Lies Ahead for the Indian Stock Market

Looking ahead, with the anticipated return of the current ruling party in the 2024 elections, India is poised to experience a significant influx of foreign capital. This, along with robust domestic factors, is expected to boost the Indian economy's growth. 

We have consistently communicated our positive outlook on the Indian markets since November, as also highlighted in our article: Stock Market Outlook for Samvat 2080

Going forward, rural development and infrastructure could be key investment themes until the elections, as the government is likely to increase spending in these areas. Financials, including Non-Banking Financial Companies (NBFCs) and banks with a rural focus, are also likely to rally. 

While we might observe a continued market rally, it's important to invest cautiously and stay vigilant. Investors are advised to add to their portfolios in tranches, avoiding getting carried away by market euphoria. In terms of market predictions, the Nifty is expected to hit the 21,000 mark in the next couple of months. On the downside, strong support is seen at around 20,100.

If you're concerned about investing at market highs, a smart choice could be to increase your exposure or systematic investment plans (SIPs) in Baskets/ ETFs (Exchange-Traded Funds). These offer an opportunity to invest periodically in a diverse portfolio with a smaller investment outlay.

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Coming to its performance, since its launch in November this year, the basket has yielded over 14% returns and is anticipated to surpass Nifty returns by a substantial margin in the future.

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