What's driving the 1,300-point rally in the Sensex?

All sectors traded in the green with Nifty Bank, Energy, Infra and Realty being the best performers with gains of up to 3 percent.

The bulls made a strong comeback on the Street, with the benchmark indices Nifty and Sensex surging nearly 2 percent each, propelling investor wealth by a staggering Rs 8.5 lakh crore in just one day. A confluence of factors—including the positive outcome of the Maharashtra elections, encouraging signals from Asian and US markets, and a welcome dip in foreign outflows—sparked widespread buying across the bourses. Here are the key factors fuelling this rally!

Short Covering: A significant feature of the Friday rally of 557 points on the Nifty was the sharp spurts in many large cap stocks with some shooting up by more than 4 percent. This clearly indicates a short covering, which will keep the market resilient today. "Given that this is the last week of the monthly expiry for the November series, most call writers have to exit their positions which could trigger a further rally in the second half of the session," Jatin Gedia, Technical Research Analyst at Sharekhan By BNP Paribas told Moneycontrol. Gedia adds that while Bank Nifty and Fin Nifty are experiencing short coverings, the Nifty is witnessing a long build-up signalling the upmove to be sustainable.

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PSU Comeback: The sharp rally in PSU stocks follows the BJP-led Mahayuti alliance's triumphant victory in the Maharashtra Assembly elections. Shares of PFC, IRFC, BEL, Central Bank of India, RVNL, Bharat Dynamics, NBCC (India), GAIL, Concor Corporation of India, and SAIL, among others, surged in the range of 3-8 percent in an overall strong market.

Given the remarkable rise in the past year, PSU stocks have been at the receiving end for a host of reasons such as expensive valuations and softer-than-expected elections outcome. As early as last week, the share of public sector companies (PSUs) in India’s total stock market capitalisation declined to an 11-month low in November amid sharp corrections. In November, PSU firms accounted for 15.34 percent of India’s total market capitalisation -- the lowest since December 2023.

Also read: Bullish sentiment builds in derivatives market after BJP's Maharashtra election win; Nifty hurdle at 24,350

Capex Push: With the elections now behind and the BJP securing a significant boost from the Haryana and Maharashtra results, analysts at Motilal Oswal believe the government will shift focus to ramping up spending. "These poll outcomes, combined with a recovery in rural spending driven by a strong monsoon and anticipated robust Kharif output, should provide a slight improvement to the demand outlook. We also expect a modest recovery in corporate earnings in the second half of FY25E," the brokerage firm noted, highlighting BFSI, capital goods, and realty as their top sector picks.

In an exclusive story, Moneycontrol had previously reported that Vikas Khemani, Founder of Carnelian Asset Management and Advisors expects the capex cycle, which slowed in the first half, to improve significantly in the second half. Capex spending declined by 17 percent year-on-year in the first half, primarily due to the election cycle. The government needs time to regain momentum after such events, especially with two to three key elections that significantly influenced the overall direction.

At about 12:20 pm, the Sensex was up 1,156.20 points or 1.46 percent at 80,273.31, and the Nifty was up 378.50 points or 1.58 percent at 24,285.80. About 2,631 shares advanced, 822 shares declined, and 121 shares unchanged.

All sectors traded in the green with Nifty Bank, Energy, Infra and Realty being the best performers with gains of up to 3 percent.

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