Nifty50 crosses 21,600 for first time: What's fueling rally
India's stock market has been on a roll, with the Sensex and Nifty50 indices experiencing a steady rise over the past four trading sessions. On Wednesday (December 27), the Sensex jumped over 500 points while the Nifty50 hit a fresh record high of 21,603.4 during the session. Market experts point to strong domestic macro numbers, easing inflation in the United States (US), falling US bond yields and the dollar, and foreign portfolio investor (FPI) purchases as reasons for the surge.
Strong domestic macro numbers
After logging a 7.7% expansion in the first half of FY24, many economists and rating agencies have re-rated India's growth projections for FY25. Fitch Ratings predicts that India will be among the world's fastest-growing nations, with a robust GDP growth of 6.5% in FY25. For the current financial year, it pegs GDP growth at 6.9%. DK Srivastava, chief policy advisor at EY, forecasts a 7% expansion from January to December 2024 and growth of at least 6.5-7% for FY25.
Hopes of interest rate cuts
With the recent cooling in the US's inflation, investors are aggressively buying stocks in anticipation of the US Federal Reserve initiating interest rate cuts as early as March next year. When interest rates go down, there is usually a surge in money circulating through the financial system. This could mean a chance for companies to rake in higher profits, which tends to lift overall market confidence.
Continuous FPI inflows
Foreign investors have been aggressively pumping money into the Indian financial market since November. After investing around Rs. 24,546 crore in November, FPIs injected about Rs. 78,903 crore into the market as of Tuesday (December 26), per National Securities Depository Limited (NSDL) data. This increased buying might be because they expect interest rates to drop, the US dollar and bond yields to fall further, and see good potential in India's economic growth.
Retail investors emerge as strong force
A growing number of retail investors in India is also contributing to the market's resilience. Bombay Stock Exchange (BSE) data reveals a 27% year-over-year increase in retail investors and a 3% monthly rise. Yogesh Patil, chief investment officer for equity at LIC Mutual Fund, told Mint, "Retail investors' participation has emerged as a strong force in the domestic markets and has reduced volatility."
Shift to large-cap stocks
Market observers also note that after substantial gains in mid- and small-cap stocks, investors are now shifting their focus to large-cap stocks due to more attractive valuations. This is causing the Nifty50 and Sensex, which are comprised of only large-cap stocks, to rise.
