Sensex crosses 70,500 marks, Nifty inches close to 21,200: What is fuelling market rally?

After taking some breather in the last three sessions, the Indian benchmark indices resumed its upward momentum on Thursday, tracking gains in U.S. and Asian markets as well as sharp decline in U.S. bond yields. All three major U.S. indices - Dow Jones Industrial Average, S&P 500, and Nasdaq – hit their highest levels for the year after the U.S. Federal Reserve kept interest rates unchanged in its policy meeting overnight and gave a dovish outlook for 2024. The U.S. central bank kept rates unchanged at 5.5%, but it signaled there could be three rate cuts coming next year, satisfying investors who hoped the central bank would finally start to acknowledge the slowing trend of inflation with a less aggressive monetary stance. 

Boosted by the Fed move, the BSE Sensex rallied as much as 955 points, or 1.4%, to hit a fresh record high of 70,540. Similarly, the broader NSE Nifty climbed 263 points, 1.25%, to touch a new all-time high of 21,189.

According to market analysts, the dovish stance by the Fed has set the stage for a smart “Santa Claus rally” in the coming days.

“The clear dovish message from the Fed yesterday has set the stage for a smart Santa Claus rally in the coming days, and this can even trigger a pre-election rally that can take the markets to a series of new highs. The takeaway from the Fed message yesterday is that the tightening cycle is over and three rate cuts are possible in 2024,” says V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services.

“The crash in the U.S. 10-year yield to 4% will trigger large capital flows to India. The main beneficiaries will be the large caps, particularly the fairly valued large caps in banking. IT too is likely to attract buying. Retail exuberance can lift the mid and small caps, too; but there is no valuation comfort in this segment,” he adds.

Apurva Sheth, Head of Market Perspectives and Research, SAMCO Securities, also opines that the U.S. central bank has fueled an early Santa Rally. “Indian markets are also likely to celebrate this with a positive opening. Simply put it in a Memefied world the market conditions are 'Just Looking Like a Wow' for the Bulls,” he says.

Meanwhile, the 30-share Sensex was trading at 70,383, up by 799 points, and the Nifty50 was at 21,166, rising 239.6 points, at the time of reporting.

In sync with the bechmark indices, the broader market also witnessed strong gains. The BSE midcap index and smallcap indices were up 0.66% and 0.8%, respectively.

The top performers on the Sensex pack were IT heavyweights Infosys, HCL Technologies, Tata Consultancy Services, Tech Mahindra, and Wipro, which rallied between 2% to 3.5%. Among others, Bajaj Finance, ICICI Bank, Bajaja Finserv, IndusInd Bank, and Axis Bank were notable gainers.

Reliance Industries, the country’s most valued firm, was also up 1% after Mukesh Ambani-led company signed deal with DBS Bank India to establish a financing programme customised to the requirements of the compressed biogas project initiated by RIL.

On the flip side, Power Grid Corporation of India, Asian Paints, Nestle India, Maruti Suzuki India, Hindustan Unilever were among top losers, falling up to 2%.

On the sectoral front, all indices were flashing in green, with IT and Teck leading the rally. The BSE IT and Teck indices rose up to 3%, tracking overnight gains in Nasdaq.

Technical Outlook

Anand James, Chief Market Strategist at Geojit Financial Services, says that reclaiming of 20,800-850 levels by Nifty not only negates the efforts of bears yesterday, but also allows resumption of upside trajectory aiming 21,030-21,220, or 21,600 in an optimistic scenario. “Alternatively inability to float above the 20890 region would weaken the bullish construct again, but a collapse is less favoured today.”

ICICI Direct in its research report says that Nifty is undergoing healthy consolidation after 1,200 points rally seen in just seven sessions. “We believe, ongoing breather would help index to cool off the overbought conditions and pave the way to gradually head towards 21,400 in coming weeks. Therefore, buying dips would be the prudent strategy to adopt as we expect the index to hold the key support of 20,500 in coming sessions,” the report notes.

According to Choice Broking, Nifty can find support at 20,900 after a gap up opening, followed by 20,850 and 20,800. On the higher side, 21,020 can be an immediate resistance, followed by 21,100 and 21,150.

“The charts of Bank Nifty indicate that it may get support at 47,000, followed by 46,900 and 46,800. If the index advances, 47,320 would be the initial key resistance level to watch out for, followed by 47,500 and 47,800,” it says in its report.

Given the positive global cues, combined with robust foreign fund inflows, the Nifty may touch new highs, and we urge traders and investors to maintain their long positions with a trailing stop loss of 20,850, says Deven Mehata, Research Analyst, Choice Broking.

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