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Market on a high with Nifty hitting fresh record: These five factors fuelled the rally

The broader markets touched record high today, with the Nifty Midcap 100 index at 25,868.95 and Nifty Smallcap 100 index at 9,389.30.

May 28, 2021 / 05:00 PM IST

Market extended gains for the sixth consecutive day on May 28. Benchmark index Nifty hit fresh record high today (the first day of June series) after a gap of 3 months.

The Nifty50 surpassed its earlier record high of 15,431.75 (in February) and hit a fresh high of 15,469.65 in intraday trade. The BSE Sensex has not reached its all-time high yet.

At close, the Nifty50 rose 97.80 points to 15,435.70, and the BSE Sensex climbed 307.66 points to 51,422.88.

The broader market indices also touched record high today, with the Nifty Midcap 100 index at 25,868.95 and Nifty Smallcap 100 index at 9,389.30.

Here are five factors that helped the market rally:

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Falling COVID Infections

The key reason behind the upbeat sentiment on the Street is the falling number of daily COVID-19 cases. Experts feel if the pace of fall of infections continues, then the market could get more strength in the coming days.

India reported 1.86 lakh COVID cases in the last 24 hours ended at 8 am on May 28, the lowest daily additions since April 14. The daily count of cases has been falling since May 7 when the country had seen more than 4 lakh cases per day.

The country's total infections reached to 2.75 crore with more than 3.18 lakh deaths, as per the data available from Union Healthy Ministry.

The active cases also fell for 15th straight day, down 76,755 in last 24 hours, while the positivity rate declined to nearly 2-month low of 9 percent and the recovery rate has risen to 90.34 percent from previous day's 90.01 percent.

Rising Hope for Opening of Economy and Likely Increase in Pace of Vaccination

The consistent fall in COVID cases raised hopes for gradual opening of economy in the coming days, though there are restrictions in selected local areas to control the spread of virus. Also the government has been working hard to cover the maximum people under its vaccination drive started in January, in the second half of CY21, which experts feel can reduce the risk of third wave of COVID-19.

"Investors are upbeat about the unlocking of economy in June which will help revive commercial activities," said Hemang Jani, Head Equity Strategy, Broking & Distribution, at Motilal Oswal Financial Services.

"The second COVID-19 wave continues to recede in India and pace of vaccination expected to pick up from next month, we expect the long term fundamentals to remain intact and the journey to become little smoother," he added.

Likely Stimulus Measures

The Street could also be reacting to the hope for another stimulus package for most affected areas, from the government to boost the economy that hit in last couple of months due to second COVID-19 wave.

The government is planning a stimulus package and direct, immediate relief for sectors such as hospitality and Medium, Small and Micro Enterprises (MSME), which are India's biggest employers and have been battered by COVID-19, sources familiar with official deliberations said.

Discussions about the package are still at an early stage but this time, the government is unlikely to go for long-term policy announcements a source said. Initial discussions suggest the stimulus package may have three elements.

Positive Global Cues and Commodity Cycle

The mood at global markets streets, too, remained optimistic about economic recovery on the back of opening of economies in the western countries and positive economic data points. Also the central bankers promised to keep rates low till the economic recoveries, so experts expect the liquidity to remain strong globally.

"The global cues have been positive as reopening of economies in western countries and encouraging economic data points towards quick global economic recovery. Further pledge by US Federal Reserve along with host of other Central Bank policymakers to keep monetary policy loose despite recent signs of an uptick in inflation has abated the concerns so far," Hemang Jani said.

The rally in key commodities - metals, sugar, agro chemicals - amid opening of economies also pushed the market to new highs.

March Quarter Earnings In Line

The March quarter earnings are broadly in line with analysts' estimates, there was a bit of pressure on margin due to rise in commodity prices. Experts largely expect the upgrade to outpace downgrades in coming quarterly earnings with the economic recovery after falling COVID cases and positive management commentaries.

"So far the March quarter has been broadly in-line. While there have been more companies guiding down their full-year estimates than those guiding up, the magnitude of the downward guidance is smaller than it is for upward guidance. So the two balance each other out," said Mark Matthews of Bank Julius Baer.

Gaurav Dua of Sharekhan said on the brighter side, the management commentary suggested confidence in recovery of demand and improvement in business post withdrawal of restriction. "Consequently, we have seen more upgrade than downgrade in this result season and expect consensus FY2022/FY2023 estimates to remain stable," he added.



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Sunil Shankar Matkar
first published: May 28, 2021 03:04 pm
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