Mkts may extend rally this month on strong domestic eco, current govt’s potential re-election
Stock markets are poised to continue their upward trajectory in May, having notched gains in the previous three months, buoyed by a positive outlook on India’s economic growth, the possibility of the incumbent government’s re-election in the current polls, and sustained involvement from domestic investors.
Despite a slight dip of 0.67% in January, the BSE Sensex bounced back in the subsequent months. Notably, it increased by 1.04% in February, 1.58% in March, and saw a further rise of 1.12% in April.
“The markets are expected to carry on with their upward momentum, driven by strong inflows and active participation from both, domestic institutions and individual investors. The ongoing corporate earnings reports, if favorable, could further strengthen this bullish trend,” commented Arvinder Singh Nanda, Senior Vice-President of Master Capital Service Ltd.
“The stock market has reached record highs, spurred by a number of factors. A noteworthy one is the robust economic outlook for India, which has heightened investor confidence. Additionally, the anticipation of rate cuts has encouraged the acquisition of Indian stocks, despite recent adjustments. Given the trend of market rallies in election years and our analysis, we predict the Nifty 50 to exhibit a positive trajectory,” explained Suman Bannerjee, CIO of hedge fund Hedonova.
The BSE Sensex made headlines by hitting a peak of 75,124.28 on April 9, marking the first instance of crossing the 75,000 threshold. Subsequently, it closed above the 75,000 mark for the first time on April 10. Not to mention, the market capitalization of BSE-listed companies surpassed the Rs 400 lakh crore landmark on April 8, a first in history.
“Despite early concerns over high valuations, midcap and smallcap stocks have been on an impressive upward trajectory. This surge is primarily supported by substantial domestic liquidity and optimism about the economic future of India. This rally in smaller companies is reminiscent of those witnessed in past global bull markets, indicating the Indian market may be entering a similar phase of growth,” suggested Sunil Nyati, Managing Director at Swastika Investmart Ltd.
Addressing the traditional “Sell in May and Go Away” strategy, Bannerjee noted that this approach might not apply this year, especially with the general elections’ outcome pending. He observed that contrary to this age-old strategy, the market dynamics and election results anticipation could lead to a rally in May. History shows that the Nifty 50 has frequently posted gains in May over the past decade, demonstrating resilience and potential for further uplift.
“In view of India’s promising economic growth prospects, the strategy for investors should focus on long-term wealth creation. Beyond the short-term volatilities, there exists a substantial opportunity for capitalising on India’s future potential in the equity market,” advised Bannerjee.
Nyati also shared his perspective on the “Sell in May and Go Away” mantra, dubbing it as outdated and questioning its relevance. “Considering the strong domestic economy and the supportive role of sectors focused on domestic growth, along with the potential re-election of the current government, I believe the market has reasons to climb higher despite global pressures, including the delayed interest rate cuts due to rising US bond yields,” he mentioned.
He further highlighted that with Foreign Institutional Investor (FII) holdings in Indian equities at record lows, an uptick in buying around elections, as observed historically, could significantly boost the market rally.
“For the near term, the future of the Indian market is closely tied to the general election outcomes. Additionally, the forthcoming Q4 earnings, economic data from the US, especially inflation numbers, the US Federal Reserve’s stance, geopolitical developments, and FII flows, are critical factors to watch,” Nyati concluded.
