Nifty shy of hitting 23,000 levels; what’s cheering D-Street today?

Domestic equity benchmark Nifty 50 shrugged off weak global sentiment to register a fresh record high on Thursday, climbing above the psychologically important 22,900 mark for the first time. The headline index logged a new peak within 20 days, after scaling its last all-time high, of 22,794.7, on May 3.

At the close, Nifty and Sensex logged fresh closing highs and ended at 22,967.65 and  75,418.04, respectively, logging decent gains of over 1,6 per cent each.

V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services on Nifty's new high said it is the market’s message of political stability after the elections. The rally is healthy since it is led by fairly valued largecaps, he noted.

Here are some of the key factors powering the rally on Dalal Street:

Macro boost:

The record dividend payout from the RBI to the government to the tune of Rs 2.11 lakh crore is the biggest tailwind for the markets today.

“The biggest positive is the record Rs 2.11 lakh crores dividend from the RBI to the government, which will give an additional 0.3% of GDP fiscal room for the government. This means the government can reduce its fiscal deficit and step up infrastructure spending,” noted Dr. V K Vijayakumar, Chief Investment Strategist, Geojit Financial Services.

Santosh Meena, Head of Research at Swastika Investmart says the infusion of funds is akin to an indirect rate cut for the economy, as it is expected to lead to a reduction in bond yields. Since many investment instruments are linked to government bond yields, this reduction will likely have a broad positive impact across the financial markets.

The improved fiscal position could also prompt upgrades in India's economic outlook, she added.

Decline in brent crude:

Oil prices continued their southward journey as the US Fed minutes hinted at a possible interest rate tightening measure. After logging over 1 per cent loss in both the benchmarks yesterday, brent crude futures fell by 0.2 per cent to $81.7 per barrel, while WTI futures traded with a cut of 0.4 per cent at $77.28 per bbl. Brent crude slipping below $82 per barrel level could impact the overall market sentiment positively.

Banking sector takes a lead amid decline in bond-yield:

Banking and financials led the gains sectorally as there has been registered a sharp decline in bond yields re reflecting lower borrowing by the government. Decline in bond yields is positive for banking stocks. India 10-year bond yield last traded flat at 6.997.

Technical factors:

With initial volatility settling post the initial hour yesterday, there appears to be no major challenge to the upside trajectory, aiming for 22720-850. But we will keep 22560 in focus, and a slippage past this could call for 22417-370, noted Anand James, Chief Market Strategist,Geojit Financial Services. 

Outlook on Nifty

Looking ahead, the Nifty index may witness further expansion. An immediate target of 23,000 is in sight, with the possibility of reaching 24,000 as the election outcome approaches, says Meena. However, while large-cap stocks are expected to perform well, mid-cap and small-cap stocks may underperform from this point forward, she added.