Nifty 50 hits all-time high, Sensex up 500 pts; 5 reasons why market is rising – explained

As of December 26 closing, Sensex has gained 17.3 per cent while the Nifty 50 has jumped 18.4 per cent this year.

The recent surge in the market could be attributed to healthy domestic macro numbers, cooling inflation in the US which boosted the hopes of rate cuts, sustained fall in the US bond yields and dollar and buying by foreign portfolio investors (FPIs).

On Wednesday, December 27, the Sensex jumped over 500 points while the Nifty 50 hit its fresh record high of 21,595.10 during the session. 

The Sensex hit its all-time high of 71,913.07 on December 20.

The overall market capitalisation of the BSE-listed firms is now near ₹361.3 lakh crore.

Here are the five factors that experts believe have boosted market sentiment:

1. Rate cut hopes

As the US inflation has been cooling of late, market participants are buying stocks aggressively, expecting the US Federal Reserve to start cutting interest rates as early as March next year.

“Market pricing now shows a more than 80 per cent chance the Fed is likely to begin cutting rates next March, according to the CME FedWatch tool, with over 150 basis points of easing priced in for all of 2024,” reported Reuters.

When interest rates decrease, more money flows into the financial system. This could potentially help companies make more profit which boosts market sentiment.

2. Robust growth outlook

The outlook for the Indian economy is strong. According to an ANI report, Fitch Ratings expects India to be among the world’s fastest-growing countries, with resilient GDP growth of 6.5 per cent in 2024-25. For the current financial year 2023-24, it pegs GDP growth at 6.9 per cent.

As Mint reported earlier, economists suggest after a 7.7 per cent expansion in the April to September period this year, the economy is expected to sustain the growth momentum in the coming quarters at a comparable pace.

According to D.K. Srivastava, chief policy adviser at EY, the Indian economy is expected to see a 7 per cent expansion in the January to December period of 2024. If one looks at FY25, the growth is expected to be in the range of at least 6.5-7 per cent, said Srivastava.

3. Strong FPI buying 

Foreign investors have been pumping money into the Indian financial market aggressively since November this year. Following an investment of about ₹24,546 crore in November, FPIs have pumped in about ₹78,903 crore in the Indian financial market in December so far (as of December 26), NSDL data showed.

The increased purchasing activity by Foreign Portfolio Investors (FPIs) may be linked to expectations of interest rate reductions, the decline in the US dollar and bond yields, alongside India’s robust economic growth prospects.

4. Role of retail investors 

Analysts highlight that India’s rising population of retail investors has significantly contributed to the domestic market’s resilience, countering foreign investors’ selling pressure observed before November.

BSE data shows, the number of retail investors has jumped over 27 per cent year-on-year while on a monthly basis, the number of retail investors has risen about 3 per cent.

“Retail investors’ participation has emerged as a strong force in the domestic markets and has reduced volatility, especially in those times when foreign institutional investors decided to redeem. As our economy expands and income levels go up, more investors are likely to invest in equities directly and through mutual funds. It should add depth to our market,” Yogesh Patil, Chief Investment Officer -Equity at LIC Mutual Fund, told Mint.

(More to come)

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Published: 27 Dec 2023, 11:50 AM IST