Nifty, Sensex hit record highs: 5 key factors driving the market rally

Continuing their robust trajectory, the Indian equity benchmark indices recorded new all-time high levels in Wednesday's trade. The S&P BSE Sensex index began the trade higher at 63,701 and climbed further to hit a historic high of 64,050. It then finished the day with a 499-point gain, or 0.79% up, at 63,915. With this, the index crossed the 64,000 mark for the first time.

Likewise, the Nifty 50 opened strongly at 18,908 and built up further to register an all-time high of 19,011. The index eventually closed at 18,972, up 154 points, or 0.82%. The index touched the 19,000 mark for the first time.

For context, during the same month last year, both benchmark indices recorded their worst monthly performance in CY22, with Nifty 50 witnessing a decline of 4.85% and Sensex plummeting by 4.58%.

Considering the June 2022 low of 15,183, the Nifty 50 has experienced a stellar rally of 25% to date, while the Sensex has soared by 25.17% from its June 2022 low of 50,921.

Meanwhile, the Nifty 50 and Sensex in the FY24 so far gained 9.40% and 8.34%, respectively. This strong rally was attributed to continuous FPI inflows, a pick-up in MF equity flow, benign crude oil prices, continued demand traction with signs of rural and capex cycle recovery, and the positive sentiment surrounding Prime Minister Modi's visit to the United States, said domestic brokerage firm Antique Stock Broking.

PM Modi's state visit to the U.S., taking bilateral relations on a new pedestal: The state visit of Prime Minister Modi to the US marked a significant milestone in bilateral relations between the two countries. The visit witnessed the sealing of crucial defence and commercial deals, along with important announcements.

Some notable achievements included India's commitment to manufacturing GE-F414 fighter jet engines for the LCA Tejas MK II aircraft, the production of MQ-9B drones, the development of US Navy ship repair capabilities, Boeing C-17 logistics support, the establishment of US semiconductor facilities and training in India in partnership with Micron, and the resolution of six World Trade Organization (WTO) disputes, as highlighted by the brokerage firm.

RBI MPC meeting minutes—Growth continues to be resilient: The release of the Reserve Bank of India (RBI) Monetary Policy Committee (MPC) meeting minutes shed further light on the market's resilience.

The committee emphasized the importance of avoiding excessively high real repo rates, as experienced during the 2015 economic cycle, and highlighted the contribution of the inflation targeting regime in reducing inflation expectations.

Early signs of rural recovery underway: "Our on-ground interactions suggest that rural markets are witnessing recovery, with select FMCG companies witnessing rural growth ahead of the urban markets. Our economic indicators (like the decline in rural inflation, healthy rural wages, robust rabi season, strong agriculture GDP growth, an expected normal monsoon, and a healthy uptick in two-wheeler registration) also suggest signs of a pick-up in rural consumption," said the brokerage.

According to the brokerage, analysis of past El Nino years indicates that the upcoming southwest monsoon is expected to be normal, especially when accompanied by a positive Indian Ocean Dipole and negative Eurasian snow cover.

Valuation remains above average: Indian equities continue to trade above average, currently at a 19.5x 1-year forward price-to-earnings (P/E) multiple. This is supported by strong FPI equity flows, with India witnessing the highest equity inflow of $3.1 billion among emerging markets in June so far, the brokerage noted.

Additionally, mutual fund equity flows ( ₹83 billion in June so far) have picked up, and favorable macroeconomic indicators, such as GDP growth, IIP, GST collection, PMI, and petroleum consumption, further contribute to the positive sentiment in the market, it added.

Antique Stock Broking's earnings projections for Nifty 50 stand at 771, 927, and 1,061 for FY23, FY24, and FY25, respectively. This implies an earnings growth rate of 20% for FY24 and 14% for FY25. Based on these forecasts, the brokerage estimated a target of 20,500 for the Nifty 50 index by March 2024, using a 19x multiple of the FY25 earnings per share of 1,061.

Sharp drop in Crude oil prices: The decline in crude oil prices and easing inflationary pressures further added to the overall positive sentiment. Brent crude futures experienced a decline of 9.62% in May and fell 0.20% in the current month so far, trading at $72 per barrel, while WTI crude futures fell 11.12% in May and 0.30% in June so far, reaching to $68 per barrel.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of MintGenie.