Introduction
Indian stock markets started the first day of the financial year 2024-25 on a bullish note, with key indices, Sensex and NSE Nifty, hitting all-time highs in intra-day trading. This surge comes after a recent correction triggered by market regulator Sebi's caution on the 'froth' in small and mid-cap stocks.
Reasons Behind the Rally
Optimism in Asian Indices
Markets edged higher on the back of a firm trend in the Gift Nifty index and optimism in other Asian indices. This positive sentiment encourages investors to engage in bargain hunting.
Expectations of Rate Cuts
The recent reiteration by the US Fed that it is still considering rate cuts despite challenges from the inflation front is expected to keep the markets in good stead. Markets are pricing in a roughly 64 per cent chance that the US Fed will cut rates by at least 25 basis points in June.
Increased FPI Investment
Foreign portfolio investors (FPIs) have shown positive sentiments for the market, with investments of over Rs 35,000 crore in equities in March. This influx of foreign investment contributes to the bullish trend in Indian stock markets.
Future Outlook
Volatility Ahead of General Election
Analysts predict that markets are likely to remain volatile as India heads for the 2024 general election. Intra-day volatility could persist in the near term, but the focus will gradually shift to fourth-quarter corporate earnings.
RBI Monetary Policy Meeting
The RBI monetary policy meeting scheduled for April 5 is expected to keep rates unchanged, which is unlikely to have a significant impact on the market. However, investors will closely monitor the RBI's commentary on inflation, growth forecasts, and the withdrawal of accommodative monetary policy.
Focus on Large-Cap Stocks
As some fund houses impose restrictions on inflows and outflows in small and mid-cap stocks, investors are likely to focus on large-cap stocks in the coming days. FPIs are also expected to increase buying activity in this segment.
Conclusion
The surge in Sensex and Nifty to all-time highs reflects the current bullish sentiment in Indian stock markets. Factors such as optimism in Asian indices, expectations of rate cuts, and increased FPI investment contribute to this rally. While volatility may persist in the short term, the focus will shift to corporate earnings and RBI's monetary policy in the coming days.
FAQs
What are the key factors driving the rally in Sensex and Nifty?
The rally is driven by optimism in Asian indices, expectations of rate cuts by the US Fed, and increased foreign portfolio investment in Indian equities.
How might the upcoming general election impact market volatility?
Analysts predict that markets may remain volatile as India heads for the 2024 general election, but the focus will gradually shift to corporate earnings and monetary policy.
What sectors are likely to benefit from the current market trends?
Large-cap stocks, especially in automobiles, capital goods, financials, and select pharma sectors, are expected to perform well due to increased investment flows and restrictions on small and mid-cap stocks.
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