Nifty, Sensex reach all-time highs: What's driving the rally
The Indian stock market is on a roll as benchmark indices, the Sensex and the Nifty, continue to defy mixed global cues and surge to fresh record highs. As of Thursday morning, the Sensex touched 67,771.05, while the Nifty reached 20,167.65, both touching new highs. Most sectoral indices saw healthy buying, with realty, metal, and PSU banks rising over a percent each. Let's delve into the five key reasons behind this remarkable surge.
India's macro numbers fuel investor optimism
Investor optimism has been rejuvenated by robust macroeconomic indicators in India. August saw a decline in the Consumer Price Index (CPI)-based inflation to 6.83% from July's 15-month high of 7.44%, while core inflation remained in line with market expectations at 4.8%. Additionally, India's industrial output soared to a five-month high of 5.7% in July, driven by strong growth in mining and power, according to official data.
US Federal Reserve rate hike pause boosts confidence
Market observers expect that the US Federal Reserve will abstain from increasing interest rates in September, even though the recent US inflation data slightly exceeded the anticipated rate. In the US, the CPI inflation stood at 3.7% in August, surpassing the expected 3.6%. This development suggests that the US economy may be experiencing the impact of the Federal Reserve's rigorous monetary tightening measures.
Technical factors and bullish sentiments
Technical analysis reveals that the Nifty recently crossed the psychological milestone of 20,000, signaling bullish sentiment. Market experts now anticipate the Nifty to aim for even higher targets, notably the 20,500 mark. However, caution is advised, as persistent foreign institutional investor (FII) selling and high valuations could potentially limit the market's upside in the future.
Surge in retail investor participation
A surge in retail investors is another crucial factor fueling the market rally. The number of Demat accounts has skyrocketed to over 12 crore, nearly three times what it was in 2020 when it stood at around four crore. Furthermore, the total number of registered investors on the BSE has risen by approximately 25% since last year. The influx of retail investors has injected greater liquidity into the market, contributing to its upward momentum.
The FOMO (fear of missing out) phenomenon
Experts have observed that there is a sense of excessive optimism, especially in mid and small-cap stocks. Despite no changes in their underlying fundamentals, these stocks have seen substantial surges over the past six months. Retail investors, motivated by the fear of missing out (FOMO), are actively participating in this trend by investing in these stocks without conducting thorough research. FOMO is playing a significant role in driving the current market rally.
