Indian benchmark indices Sensex and Nifty 50 opened at record highs in Monday’s trade session. Nifty 50 touched its all-time high of 20,655.50 on the back of across-the-board buying after the Bharatiya Janata Party (BJP) registered victories across three major states.
The assembly election results for the key states of Madhya Pradesh, Rajasthan, Chhattisgarh, and Telangana have thrown a positive surprise for the markets, with the markets now expecting the continuation of existing government policies beyond 2024 and decisive election mandates.
Pranav Haridasan, MD & CEO, Axis Securities says, “This development removes a significant short-term overhang from the markets. We believe that the near-term markets are likely to see strong interest, led by a rebound in industrial growth and a benign interest rate trajectory. Yesterday’s events have lowered risk for investors in the short term, and they can expect a good closing for the calendar year. In the medium term, critical market risks remain higher than historical valuation levels and potential global slowdowns, especially in the US, China, and Europe.”
The market sentiment is expected to strengthen further and the prospect of a pre-election really is strong. Nifty has given positive results from 9-36 per cent six months into the announcement of general election results on five previous such occasions from 1999 to 2019. The benchmark index gained over 11 per cent in the six months before the 2019 general election results. It rallied 19 per cent before the 2014 elections and 31 per cent in the run-up to 2009 elections. In the last eight general elections, the Nifty 50 index witnessed negative returns only once.
Other key factors boosting the stock market rally in the last one week are resurgent optimism from FIIs, with Rs 10,593 crore bought in the past week and a 15.1 per cent year-on-year surge in GST collections.
The recent macroeconomic figures in addition to the global rating agencies upgrading growth forecasts indicate that India remains a shining star in a still challenging global economy. With the pre-election rally underway, analysts expect Nifty to climb towards 22,500 ahead of the general election.
Kranthi Bathini, Director of Equity Strategy at WealthMills Securities Pvt Ltd says considering the state election results fueling the expectations of political stability in the country, positive macro-economic indicators such as GDP data, correction in crude oil prices, pausing of interest rate hikes, and falling inflation, the markets are fairly valued on an index level. However, investors should remain cautious during all circumstances.
Tanvi Kanchan, Head of Corporate Strategy, Anand Rathi Shares and Stock Brokers explained that Indian equity valuations have become excessively high, particularly for mid-cap and small-cap stocks. However, it is crucial to comprehend that the substantial upswing observed in mid and small-cap indices in 2023 primarily served as a means to recoup the underperformance since early 2018. Furthermore, substantial accelerations in earnings support rallies in these indices.
“Consequently, we do not observe any substantial overvaluation of mid-cap or small-cap equities relative to their historical averages, at least at the index level. On the contrary, over the last two years, the performance of large-cap indices has been lackluster, yielding returns in the single digits, which are below historical averages. In light of the foregoing, we maintain the opinion that the Indian equity market is reasonably valued at the index level,” she added.
In the last year, the Sensex has surged slightly over 9 per cent and over 6 per cent in the last one month. Last week, the 30-share index closed at 67,481.19 posting weekly gains of over 1,100 points.
According to Arvinder Singh Nanda, Senior Vice President, Master Capital Services, the Nifty prices initiated the week on a high note, reaching a time high at 20602.50. In contrast, Bank Nifty is still around 1 per cent to approach its record peak. A bullish crossover was observed between key moving averages—specifically, the 21-day and 55-day EMAs. This convergence strengthens the likelihood of a sustained upward trend in prices, with a potential consolidation around the 21000 mark, and 47000 level in bank nifty.
However, at the same time, we can’t rule out the possibility of a corrective pullback driven by profit-booking activities as many oscillators currently indicate an overbought market condition. Despite this cautionary note, our outlook maintains confidence in the bullish trajectory. Any corrective decline towards the range of 20300-20250 is viewed as an opportune moment for strategic market entry, while 44800-45000 in bank nifty will allow investors to establish fresh long positions.