According to Bernstein, the Indian stock market could experience a short-term rally either leading up to the Lok Sabha elections or in the week following the results. This rally might propel the Nifty 50 to surpass the 23,000 mark. However, it’s anticipated that this short-term surge could be followed by profit booking.
The Macro Economic Impact- The market sentiments have recieved a boost after the RBI had announced a record ₹2.11 lakh crore dividend. This development is positive as it will assist the government in managing its fiscal deficit target.
“The biggest positive for the market is the record ₹2.11 lakh crores dividend from the RBI to the government, which will give an additional 0.3 per cent of GDP fiscal room for the government. This means the government can reduce its fiscal deficit and step up infrastructure spending,” said Vijayakumar.
Banking Behemoths Lead The Way– The top banking firms have been at the helm of driving this uptick, as they carry most of the wieght in the benchmark indicies their contribution towards the bullish trend remains significant.
HDFC Bank, ICICI Bank, and Axis Bank stood out as prominent contributors to the gains in both the Sensex and the Nifty 50 index. This surge followed a notable decline in India’s 10-year bond yields subsequent to the RBI’s substantial dividend payout to the government.
“Bond yields have declined sharply, reflecting lower government borrowing. The decline in bond yields is positive for banking stocks,” said Vijayakumar.
Domestic Investment Increased- The bullish upturn in the market has been largely attributed to domestic institutional investors (DIIs), who have been actively driving the momentum. Conversely, profit booking from Foreign Institutional Investors (FIIs), as they divest from their stocks, has been observed. The data indicates that until May 22, domestic institutional investors (DIIs) purchased Indian stocks worth ₹38,331 crore in the cash segment. In contrast, Foreign Institutional Investors (FIIs) have sold stocks worth ₹38,186 crore in cash since the beginning of this month.
Technical Analysis- Another significant factor contributing to this uptrend is the breaking of previous resistance levels, coupled with many stocks surpassing their 52-week highs.
Soni Patnaik, Assistant Vice President of Equity Derivatives Research at JM Financial Services, highlighted that the Nifty 50 surpassed the crucial resistance level of 22,800+ during the weekly expiry today. He suggested that from current levels, there’s potential for it to advance towards the 23,000 mark by the month-end expiry.
“Aggressive put options writing can be seen from the base of 22,500 PE to all the way till 22,800 PE, forming a strong support base at 22,600/22,700 levels now,” said Patnaik.
Ajit Mishra, Senior Vice President of Research at Religare Broking, suggests that the Nifty 50 is targeting the 23,100-23,400 zone, with the 22,600-22,800 zone likely to offer support in the event of any pullback.
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