Sensex up 659 points, Nifty climbs 183: What’s driving the rally

Indian markets surged 1 percent on Monday led by banking and consumer firms. The stock markets have been gaining since the start of April amid improved macro-economic conditions. All eyes are now on US CPI on Wednesday.

At 11.50am, the benchmark Sensex gained 1 percent or 659 points to 61714 points while the Nifty climbed 1 percent or 183 points to 18252 points.

“The recent improvement in India’s macroeconomic indicators, including peaking interest rates and a better external position in terms of the balance of payments, has been well-received by the market. It is hoped that this improvement in the macroeconomic environment will translate into better performance at the micro level in the coming months”, said Kotak Institutional Equities in its latest report.

Factors on why markets surging:

FII buying started: Investors sentiment boosted amid continued buying from foreign investors. FIIs have resumed their investments after remaining net sellers in the past 18 months. In the last five sessions, FII’s bought over $2 billion, while since 28 March they invested over $3.1 billion in Indian equities.

Rate pause expectations: After pausing rate hike by the Reserve Bank of India, investors now hope the US fed also follows the same path. Recently, the US Fed had increased the interest rate by a quarter of a percentage point. However, the bank has removed from its policy statement the language that previously indicated it “anticipated” further rate hikes.

Although this change does not entirely rule out the possibility of another rate increase at the next policy-setting committee meeting in June, Federal Reserve Chair Jerome Powell has stated that it is uncertain whether additional hikes will be necessary. The economy is still grappling with high inflation, but there are also indications of a slowdown and concerns of a possible credit squeeze by banks on the horizon.

India factory & Service PMI: India’s factory activity expanded at its quickest pace in four months in April, driven by solid growth in new orders and output, a private survey showed on Monday, signaling resilient demand and an encouraging outlook.

The survey results suggest India will continue to be one of the fastest-growing major economies despite slowing global growth that has undermined momentum across several other countries.

India’s services sector surged in April as the sector’s Purchasing Managers’ Index (PMI) jumped to 62.0 from 57.8 in March, according to data released by S&P Global on May 3. At 62.0, the services PMI is the highest in nearly 13 years. It has stayed above the key level of 50 that separates expansion in activity from a contraction for 21 months in a row.

GST collection: The government collected a whopping Rs 1.87 lakh crore as Goods and Services Tax (GST) in April. At Rs 1.87 lakh crore, the GST collected in April is at an all-time high by a substantial margin. The previous record high was Rs 1.68 lakh crore, collected in April 2022.

Moderating Valuations: Following lackluster returns over the past 18-20 months, the Indian market is now trading at reasonable valuations compared to recent history. This decline has led to a moderation in the valuations of Indian equities, allowing them to catch up with global peers. As a result, the domestic indices have outperformed most global peers in April.