Sensex, Nifty register biggest weekly gains since April 2022

Interestingly, this rise comes even as foreign institutional investors (FIIs) remain net sellers.

The Sensex and the Nifty hit a record high of 61,765 and 18,477, respectively, on October 18, 2021. Since then, both have lost 15 percent each, mainly on FII selling.

Foreign investors have been selling continuously since October 2021 and have sold nearly $32 billion in equities so far.

In the same period, domestic institutional investors (DIIs) have bought shares worth Rs 2.93 lakh crore. Year-to-date, the FII outflow has been $27.93 billion while DII inflow has been at Rs 2.23 lakh crore.

Since October 2021, the Sensex and the Nifty have fallen over 10 percent each. So far in 2022, both have declined 9 percent each.

So, even when FIIs are sellers, what are the factors behind this rally.

The rally drivers

"Inflation remains the key variable for global and domestic markets and any signs of easing in inflation will likely provide a cap to bond yields and a bottom to markets," Kotak Institutional Equities said in a recent note to investors.

“Gains in the global markets after the recent positive news about good monsoons, decline in crude oil prices and collapse in metal prices raise hopes about domestic inflation peaking over the next few months and trending down in the second half of FY23," said the note.

Crude oil: Brent crude oil price has fallen over 10 percent in the last 10 trading days from its record high of $123 a bbl. The rally seen previously reversed early this month on escalating concerns over global slowdown as central banks, including the Federal Reserve, boosted interest rates to quell raging inflation. Prices have dipped, despite signs that the energy markets remain tight in the near term as the war in Ukraine drags on and supply risks persist.

Sharp selloff in metal: The collapse in metal prices over the past month may help keep inflation under check over the next few months. “The sharp decline in commodity prices reflect growing concerns about a recession in Europe and the US in 2023. A mild recession in developed markets need not be bad for India as it will result in softer commodity prices and lower imported inflation," the Kotak report said.

Monsoon: A revival in monsoon over the last fortnight after a late start raises hopes of a normal monsoon, in line with the Met department forecast. "We note that high food inflation has been one of the drivers of overall inflation over the past few months. However, the bulk of inflation is largely from seasonal items such as fruits and vegetables. A good crop output in the next season will hopefully bring down prices while keeping prices of food-grains and other items under check,” the report added.

Strong key numbers: Factory output data, air passenger and tax collections are showing strong growth in the Indian economy. Factory output growth rose to an eight-month high of 7.1 percent from a year ago, led by a double-digit increase in electricity production, while manufacturing and mining also expanded at a healthy pace. A similar trend was seen in the output growth of eight infrastructure industries, which increased to 8.4 percent from 4.9 percent in March 2022.

Domestic air passenger traffic saw a strong recovery in demand as Indian carriers flew 1.20 crore passengers on local routes in May 2022, logging nearly a five-fold year-on-year (YoY) volume growth, DGCA data showed.

Net direct tax collections for the current fiscal surged 45 percent to Rs 3.39 lakh crore between April 1 and June 16, compared to Rs 2.33 lakh crore in the same period a year ago, the Central Board of Direct Taxes (CBDT) said.