Sensex breaches 66,000 for the first time: Key factors behind the stunning market rally

Indian equity markets reached new heights on Thursday, propelled by a global market rally and positive domestic factors. The BSE Sensex breached the 66,000 mark for the first time, surging over 670 points to achieve a record high of 66,064.21. Simultaneously, the Nifty50 rallied 183 points, crossing the significant psychological milestone of 19,500 to reach a new high of 19,567.

The rally was primarily fueled by gains in banking and IT heavyweights, despite the mixed quarterly earnings of key IT firms such as TCS and HCL Tech. Notably, Infosys, ICICI Bank, TCS, HDFC Bank, and Axis Bank played a significant role in driving the Sensex gains.

The surge in IT stocks was remarkable, supported by stable margins, new business opportunities, and the moderation of the US dollar, as US inflation approached the Federal Reserve's target levels. Investors showed confidence in the IT sector, displaying a contra bet buying strategy.

The broader market also displayed positivity, trading at an all-time high level in anticipation of buoyant Q1 results and low volatility. However, the Nifty Midcap and Nifty Smallcap indices experienced a decline of around 1% each.

Several factors contributed to the market rally. Firstly, the lower-than-expected US inflation numbers ignited a global market rally, raising hopes that the Federal Reserve would soon conclude its monetary tightening cycle. The US consumer price index, a key inflation gauge, rose by only 3.0%t from a year ago in June, the smallest increase since March 2021. The figure was below economists' expectations of 3.1%.

On the domestic front, the June consumer price index (CPI) inflation in India increased to 4.81%, primarily driven by a rise in vegetable and milk prices. However, the May Index of Industrial Production (IIP) indicated robust growth momentum, rising to 5.2%. These positive economic indicators contributed to the market rally.

Furthermore, Asian shares also surged, boosted by Wall Street's strong performance. Japan's Nikkei 225 rose by 1.3%, South Korea's Kospi jumped around 1%, Hong Kong's Hang Seng surged by 2.3% and China's Shanghai Composite gained 0.8%. The S&P 500 on Wall Street rose by 0.7%, reaching its highest level since April 2022.

The strengthening of the Indian rupee against the US dollar also added to the positive sentiment. The rupee rose by 21 paise to $81.97, as cooling US inflation raised expectations that the Federal Reserve would pause interest rate hikes sooner than expected.

Foreign investors continued to play a pivotal role in supporting Indian markets, with substantial inflows in recent months. In 2023, foreign investors have already infused around ₹1.01 lakh crore into Indian equities, with inflows of ₹25,343 crore in July and ₹47,148 crore in June alone. This consistent buying streak by foreign investors has bolstered market sentiment.

In summary, the Indian equity markets achieved fresh record highs, propelled by a global market rally, positive domestic economic indicators, and sustained inflows from foreign investors. The rally was led by banking and IT heavyweights, overcoming some weakness in IT firm earnings. These factors, along with a moderation in US inflation, have instilled confidence among investors, propelling the markets to new heights.