Sensex Crosses 69K Mark: Decoding the Rally and What Lies Beyond

Kotak Insights | Date 08/12/2023

Indian stock markets are in the headlines for all the right reasons in recent days.

The market benchmark indices touched their lifetime highs this week, with the Sensex ending above the 69,000 mark.

This is a milestone, especially among momentum investors enjoying the market’s stellar performance this year.

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For investors and traders, this rally brings up a question, "Is this the right time to enter into the market, or will there be a potential correction from these highs?"

Let us answer this by taking a closer look at this rally and the reasons behind it.

The Rally Unveiled

First things first, let us understand what this rally is about.

For the first time, the Sensex crossed the 69,000 mark this week on Tuesday, following a gain of 431 points. It is currently trading past the 69,400 mark.

More than half of the sectoral indices on the BSE hit new highs and the combined market capitalisation of BSE-listed companies increased by Rs 3 trillion to Rs 346 trillion.

Furthermore, the Nifty50 index rose and closed at the 20,900 mark.

This outperformance came on the back of the rally seen in Adani Enterprises and Adani Ports & SEZ, which rose over 15%.

However, the markets have been witnessing buying interest for consecutive days this week.

Here are a few factors pumping this rally…

The Election Factor

Firstly, we have the elections.

Indian stock market participants are seemingly buoyed by the results of the recently concluded state elections.

The Bharatiya Janata Party's (BJP) triumphant victories in three out of five states have elevated expectations for sustained political stability at the Centre and ongoing economic reforms.

The outcome has exceeded market expectations, as the elections were anticipated to be a closely contested affair in Madhya Pradesh, Chhattisgarh, and Rajasthan.

In fact, the results of this election has also set a canvas for a pre-election rally, wherein another major market upswing can’t be ruled out in the run-up to the general elections.

GDP Triumph

Second up we have the recently announced GDP numbers for the second quarter (Q2) – covering months of July, August, and September – of the current financial year (FY24).

The Ministry of Statistics and Programme Implementation (MoSPI) showed that India’s Gross Domestic Product (GDP), which is the measure of a country’s economic output, had grown by 7.6% in Q2.

The growth surpassed the Reserve Bank of India’s (RBI) estimate of a 6.5% expansion, and the growth is higher than the 6.2% growth seen in the year-ago period.

This makes India the fastest growing major economy.

With this, India remains on the growth path despite multiple global headwinds arising from economic and geo-political uncertainties.

Noticeably, while the share of private consumption in the GDP declined, there was an increase seen in the share of investments. This suggests that investments are gaining momentum.

In all, the optimism surrounded by this growth has given the Indian markets a boost.

FPI’s Return to the Arena

Lastly, we have the foreign portfolio investors (FPIs) betting on India.

After turning net sellers in the past two months, FPIs made a comeback in the Indian stock markets in November.

They pumped in Rs 9,000 crore in Indian equities last month amid a fall in U.S. treasury bond yields and the resilience of the domestic market.

The inflows can also be attributed to the remarkable listings of two initial public offerings (IPOs) – IREDA IPO and Tata Technologies IPO – potentially indicating a positive trend for foreign investors.

Not only this, but FPI also made a net investment of Rs 14,860 crore in the debt market last month, the highest in six years.

Invest or Wait?

So, the question looms - should you enter the markets now or wait and watch from the sidelines?

Remember, the market is a tempting playground, and missing out on the action can be disheartening. However, it is also essential to tread carefully.

The second-quarter results (Q2FY24) of top companies are giving investors a reality check, suggesting that the rally still has plenty of legs.

Additionally, the IPO market is currently buzzing with excitement. This optimism is contagious, and if retail investors and FIIs keep pouring in money, another market high might not be a distant dream.

However, there are always contradictory narratives.

Some market participants caution that Indian markets are looking expensive and that foreign funds might find better deals in other emerging markets as the Fed stops raising interest rate and eventually pivots lower.

Many wonder whether they should follow a wait-and-watch approach as markets trade above their long-term valuation multiples.

So, as traders and investors, it's crucial to keep the expectations in check.

The Right Approach?

Within the dynamic and tempting market landscape, patience and discipline emerge as guiding principles.

Embrace what's working well at the moment, but don't let the fear of missing out drive your decisions.

The ideal approach would be to have an effective trading strategy that can weather both bull runs and bear markets and has enough risk management measures.

Cautiously optimistic is the word of the game.

So, buckle up, and let's see where the Sensex is headed in 2024!

For a more thorough market outlook, tune into our latest Stocks and Strategy – December 2023 Webinar where our research team discusses the stocks and sectors that could perform well in this market.

Until then - Happy Learning!

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Sources: Kotak Securities, BSE, NSE, Economic Times, MoSPI, RBI

Disclaimer: This article is for informational purposes only and does not constitute financial advice. Investors should conduct their own research and consult with financial professionals before making any investment decisions. Read the full disclaimer here.