Sensex, Nifty at record closing highs; here are top factors that drove the rally today

Nifty 50 hit a record high of 22,993.60 while Sensex hit a record high of 75,499.91 on May 23

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Nifty 50 and Sensex surged 1.7 percent to hit fresh all-time highs on May 23, boosted by India Inc's in-line Q4 earnings, RBI's record dividend payout, and increasing election certainty. Buying in largecap IT stocks and banking stocks contributed to the rally in the benchmark index.

Nifty 50 hit a record high of 22,993.6 intraday, while Sensex hit a record high of 75,499.91.

Adani Enterprises and HDFC Bank stocks contributed the most to the rally in Nifty 50,  gaining 8 percent and 2 percent, respectively.

On the other hand, Sun Pharmaceutical and Power Grid were the major laggards falling 3 percent and 2 percent on the back of weak Q4 earnings.

At close, the Sensex was up 1,196 points or 1.6 percent at 75,418 and the Nifty 50 was up 369 points at 22,967. About 1,573 shares advanced, 1,767 shares declined, and 110 shares remained unchanged.

Also Read | Bank stocks help Nifty scale 22,900 for the first time

Here are the factors that contributed to the Nifty crossing 22,900 for the first time ever.

1. RBI's record dividend payout: The record Rs 2.11 lakh crore dividend from the Reserve Bank of India, declared this week, is expected to help the government contain fiscal deficit, said experts.

"This is giving confidence to the market on the fiscal deficit front because this is a surplus of Rs 1 lakh crore from the RBI. This a surprise for the market as the market was projecting a Rs 1 lakh crore dividend," said Rajesh Palviya, Head of Technical & Derivatives Research at Axis Securities.

Palviya said that this surplus amount may lead to further spending on infrastructure. "We have seen momentum in infra, railway, capital goods, and other stock which are directly linked with the spending of government."

"This development is a significant macroeconomic positive for the market, with direct implications for the fiscal deficit and bond yields," said Santosh Meena, Head of Research at Swastika Investmart.

Also Read | RBI board approves record surplus transfer of Rs 2.11 lakh crore to government for FY24

2. Election results hope: Investors are now more hopeful of a clean BJP government win in the ongoing general elections.
"There was nervousness about election results but considering how the polling phases have panned out in the last five phases, it is in line with the 2019 elections. So, there is no dullness on the voting percentage. That gives confidence to the street about the incumbent government coming back to power," said Palviya.

Continuation of policy action will provide comfort to the market, said experts.

"The Nifty hitting a new record is the market’s message of political stability after the elections. The rally is healthy since it is led by fairly valued largecaps," said V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services.

3. Q4 earnings: India Inc's Q4 financial results provided support to the index, with no negative earnings surprises, said analysts.

Also Read | Nifty 50 to hit 1,50,000 in next 15-17 years but not without corrections, says Raamdeo Agrawal

4. Participation from midcaps and smallcaps: Midcaps and smallcaps have been registering new highs frequently, said Ruchit Jain, Lead Research Analyst at 5paisa. "This indicates that the broad market participation is quiet strong," he said. But, some pockets have become a bit overbought, he added.

Santosh Meena expects midcap and smallcap stocks to underperform from this point forward.

At close, BSE Midcap was up 0.6 percent and BSE Smallcap was up 0.3 percent.

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5. Expectations of FIIs buying: Foreign Institutional Investors (FIIs) have been net sellers in Indian equities of late. But, the market is experiencing a short-covering rally that appears to have further momentum, said Santosh Meena. He said that despite continuous selling by FIIs in the cash market, there is now an anticipation that they may shift to buying, which would provide additional support to the market.

"FIIs have formed decent short positions in the May series and despite this market rally, those short positions are still intact," said Ruchit Jain. "About 69 percent of their positions are still on the short side. If the market continues to show strength, then those shorts could come to cover and that would keep propelling further upmove in the market."

Jain said that the overall trend for the market is quiet strong. "We have consistent inflows in the mutual funds through SIP mode, which is absorbing all the FII selling seen in the last couple of months," Jain said.

Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.