Sensex, Nifty jump 1% each; here are key factors behind the rally

Indian markets on Friday jumped nearly 1 percent ahead of key gross domestic product data due next week. Both benchmark Sensex and Nifty rose 624 points and 152 points respectively.

The foreign investors continued to buy in local equities with over $5.34 billion since the start of April. So far In May, both Sensex and Nifty rose 2.3 percent each while BSE MidCap and SmallCap 4.5 percent each.

“Indian equity markets remained concerned about growth prospects, even as inflation continued its downward trajectory both globally and domestically. Global markets were mixed last week as concerns around the US debt ceiling and a weak global growth outlook persisted. Indian equity markets were buoyed by a decent Q4FY23 earnings print, even though the quality of earnings was weak,” said Shrikant Chouhan, Head of Equities Research (Retail), Kotak Securities.

In its recent report, Jefferies, a foreign brokerage, expressed confidence in India’s enduring structural narrative and believes that it is only a matter of time before the BSE benchmark Sensex crosses the remarkable 1,00,000 milestone. This target has captured the fascination of India’s vibrant financial media landscape. Jefferies’ projection is based on an assumption of 15 percent earnings per share (EPS) growth over a five-year period and the maintenance of a five-year average one-year forward price-to-earnings (PE) multiple of 19.8 times.

Factors on why markets trading higher:

GDP: Indian markets awaiting the GDP data for the March quarter on 31 May. India’s Gross Domestic Product (GDP) growth is expected to have grown by 5.1 percent in the final quarter of 2022-23, up from 4.4 percent in the previous quarter, according to estimates of 15 economists polled by Moneycontrol. Economists also see growth for the full year ended March matching the statistics ministry’s second advance estimate of 7 percent.

In its recent research report, Ecowrap, the State Bank of India (SBI) stated on Friday that India’s growth in the fourth quarter of FY23 is expected to reach 5.5 percent, resulting in a growth rate of 7.1 percent for the entire fiscal year. These projections align with the advance estimates released by the National Statistical Office (NSO) in January, which indicated a growth rate of 7 percent for the period ending on March 31, 2023.

Normal Monsoon: India has reconfirmed its expectation of a normal monsoon this year, alleviating concerns regarding weather-related impacts on inflation. During the June-September season, the rainfall is projected to be approximately 96 percent of the long-term average, as stated by D.S. Pai, a senior scientist at the India Meteorological Department. This forecast aligns with the previous prediction made in April. The monsoon holds immense significance for India’s economy, as it irrigates half of the nation’s farmlands and greatly influences the prices of essential food items, as well as the livelihoods of millions of farmers. While inflation has recently decreased to an 18-month low, analysts have expressed worries that adverse weather conditions could reintroduce inflationary risks.

Banking profitability: According to S&P Global Ratings, the profitability of the Indian banking sector is expected to stabilize at a healthy level, and there will be a continued improvement in asset quality. S&P Global Ratings credit analyst Deepali Seth Chhabria highlighted that Indian banks’ earnings are likely to remain robust. Over the past seven years, the sector has made significant progress, overcoming challenges related to non-performing loans, particularly among public-sector lenders.

Debt ceiling deal: Investors are closely monitoring the possibility of a debt-ceiling deal, which is anticipated to occur over the weekend. US lawmaker to announce a deal to tackle debt limit by late Friday or Saturday (May 27), according to Goldman Sach Group Inc.

Monthly data: Investors will also eye monthly data on eight core, fiscal deficit, GST numbers, monthly auto and PMI services and manufacturing data due next week.