Sensex Up Over 3,600 Points In A Month: What’s Driving The Rally?

The Indian stock markets are on a roll, with the benchmark BSE Sensex and Nifty hitting fresh highs yet again on Tuesday amid sustained investor optimism.

Over the past month, the Sensex has gained over 3,600 points, or 5.7 per cent, to hit an all-time high of 66,985.50 on Tuesday. Meanwhile, the Nifty has jumped more than 1,000 points, or 5.1 per cent, during the same period to hit its peak of 19,811.25.

Analysts attribute the sharp spike in indices to a combination of factors like strong foreign inflows, support from global markets, easing US inflation hinting at the end of the rate-hike cycle and expectations of a solid earnings season back at home for the quarter-ended June 2023.

Global factors induce optimism

Global markets, especially Asian equity indices, are on the rise after the US inflation slid to a two-year low in June. The US consumer price index (CPI) rose 3 per cent in June compared with a year ago, while the core measure advanced just 4.8 per cent, the lowest since 2021.

While analysts expect that the US Federal Reserve will still go ahead with one more rate hike in its July 26 meeting, the likelihood of a further increase in the September meeting appears to be receding with cooling inflation.

Besides that, global markets are also being supported by improving economic outlook after the US reported better-than-expected quarterly gross domestic product (GDP) growth of 2 per cent in the first quarter of the current fiscal year and declining jobless claims.

Encouraging data on all fronts – growth, inflation and jobless claims -- have helped undercut expectations that the US was heading towards a recession.

Foreign Investor repose faith in Indian market

Meanwhile, Indian markets are enjoying unwavering support from foreign portfolio investors (FPIs), which has helped in sustaining the positive momentum.

Data from exchanges show that foreign investors purchased a net $5.7 billion in Indian equities in June, the biggest such inflow since August 2022, on expectations of a bumper earnings season and normal monsoons.

FPIs have also remained net buyers in Indian stock markets for the fifth straight month in July, according to data from the National Securities Depository Ltd (NSDL).

Strong growth projections for India by various global agencies have made Indian stock markets a bright spot for foreign investors in an otherwise bleak global scenario.

Strong Q1 results

Robust earnings growth forecast for the quarter ending June 2023 (Q1FY24) is also fuelling the rally in Indian stocks. On Monday, India's largest private sector lender HDFC Bank Ltd reported 30 per cent growth in net profit for the June quarter, beating estimates. Before that, top software exporter Tata Consultancy Services Ltd (TCS) also posted better-than-expected growth in Q1 net profit at 17 per cent.

As early indicators are positive, markets seem to be gearing up for a strong earnings season, paving the way for the next leg of the rally. Though, analysts advise caution as any negative surprise on the economic front can trigger a strong sell-off.