BJP sweep powers Nifty, Sensex to new highs; 4 factors fuelling the rally

The domestic equity markets closed on an euphoric note on December 4, with the benchmark Nifty 50 and Sensex scaling new highs as investors cheered BJP's big win in three Hindi Heartland states, which analysts said  indicated political stability and reduced fears of populism.

On December 4, the Sensex shut shop 2 percent higher or up 1,383 points at 68,865 levels, while the Nifty was up 418 points, or 2.07 percent at 20,686. The Sensex scaled a lifetime high of 68,918.22, while the Nifty hit a new all-time high of 20,702.65 during intra-day deals. Both the benchmarks logged biggest single-day gains in over a year.

Sectorally, Bank Nifty index also hit a fresh lifetime high of 46,484 levels on December 4 and closed over 3 percent higher.

That apart, barring Nifty Media and Pharma indices, all sectors closed on a positive territory.

Here are the key factors that have sent the market zooming:

1. BJP's big election wins

The BJP's strong showing in Rajasthan, Madhya Pradesh and Chhattisgarh, which were among the five states to vote for a new assembly in the previous month, allayed concerns of fiscal populism and political risks, adding to momentum across the market.

The Congress won in Telangana and votes were being counted for Mizoram.

"The state elections results have turned out to be a big event which can trigger renewed optimism and further rally in the market. Market likes political stability and a reform-oriented, market-friendly government," said VK Vijayakumar, Chief Investment Strategist, Geojit Financial Services, said.

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Analysts also expect strong gains making way in the domestic market buoyed by the election results, with many betting on hopes of the Nifty hitting the 20,800 mark in the coming sessions.

Brokerage firm Jefferies said the BJP's win in three key states was better than what exit polls predicted and hence, the results reinforced consensus expectations of a Modi win in the 2024 general elections.

PhillipCapital also forecasted positive foreign investor flows into India amid the BJP's win in three state elections and peaking global interest rates.

Also Read | BJP victory may boost bank, industrial, power, property sectors: Jefferies

2. Positive global cues

The global backdrop was also favourable, with the benchmark indices in the US positing strong gains on December 1 and Asian markets inching higher in the trade during the day.

Moreover, a decline in oil prices, US 10-year bond yield and the dollar index further aided sentiment. On that account, Vijayakumar anticipates an across the board rally for domestic stocks.

"Global markets are currently in a fabulous mood. The US 10-year bond yield and the dollar index are also cooling off, which gives strength to the market. These factors will be closely monitored, as they have the potential to influence market sentiment," said Pravesh Gour, Senior Technical Analyst, Swastika Investmart.

3. Interest rate-cut expectations

With signs of inflation cooling down, investors have baked in expectations of the US Federal Reserve finally putting a stop on its rate hike regime when meets on December 12-13. Not just that, market participants across the globe are also hopeful that the Federal Reserve will start cutting rates by mid 2024, aiding sentiment.

Much like the Fed, the Reserve Bank of India is also expected to hold rates when it meets December 6-8.

4. The return of FIIs

After being net sellers for three straight months, foreign institutional investors (FIIs) made a comeback at the fag end of November, net buying domestic equities worth Rs 5,795.05 crore. The trend has continued in December, with FIIs buying equities worth Rs 1,589.61 crore in the first session of the month.

The rollover of positions to the December F&O series by FIIs also reflect a decline in short positions along with some addition of longs, which suggests that this buying momentum is likely to continue.

Also Read | PhillipCapital predicts surge in FII flow after BJP's win in 3 states

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