Sensex, Nifty open at record highs; banks, metal stocks lead gains

The Nifty and Sensex indexes commenced trading at unprecedented highs on May 27th. Throughout the trading session, both indexes remained predominantly above the closing levels of the preceding day. The encouraging news that US consumer inflation expectations had declined bolstered the belief that the Federal Reserve would implement a rate cut later this year. Data released by the University of Michigan revealed that projected price increases for the upcoming year had moderated from 3.5% to 3.3%.

Despite the positive inflation data, market experts urge caution, recommending observation of future Fed statements and actions for clear indications of potential rate cuts. The market anticipates a rate cut, but there is ambiguity surrounding its timing and magnitude, according to Kranthi Bathini, Director of Equity Strategy at WealthMills Securities. Bathini suggests that the market may find temporary comfort in the inflation data.

As of 11:00 am IST, the Sensex gained approximately 225 points (0.3%), reaching 75,637, while the Nifty climbed around 44 points to 23,000. Earlier in the day, both indices reached new highs, with the Sensex hitting 75,679 and the Nifty touching 23,043. Despite the gains, the market breadth was negative, with 1,737 shares declining compared to 1,581 advancing. 118 shares remained unchanged.

The Nifty 50 index saw strong gains driven by banking and metal stocks, while automobile and energy stocks experienced significant losses. Meanwhile, the broader market saw positive performance, with both the BSE Midcap and BSE Small indices rising by 0.5%.

Foreign institutional investors (FIIs) have stopped their heavy selling in the Indian market and have even started buying in recent days. According to V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services, 'As the election picture becomes clearer, FIIs are likely to increase their investments in India, as they cannot afford to miss out on the potential rally following the election results.'

Vipul Bhowar, Director of Listed Investments at Waterfield Advisors, believes the RBI's record ₹2.11 lakh crore dividend payout to the government may have prompted Foreign Portfolio Investors (FPIs) to reassess their selling strategy. Bhowar suggests that this move could temporarily halt FPI selling. He adds that the dividend payout is likely to reduce the FY25 fiscal deficit by roughly 0.2% of GDP, potentially mitigating the government's need to borrow from the market. "As a result, more funds could be made available for capital spending, stimulating economic growth."

According to Bathini, the Indian equity market is experiencing a surge in positivity due to two key factors: the unexpected decision by the Reserve Bank of India (RBI) and the increasing conviction that the ruling Bharatiya Janata Party (BJP) will secure a majority in the ongoing elections. He believes that the selling of Indian equities by foreign portfolio investors (FPIs) may be nearing its end as the election results draw closer.

Although the market breadth has not been positive lately, Bathini expects it to improve going forward. "In the futures market, the Market Wide Open Position has been quite strong. The rally on May 23 was due to short covering and participation from FPIs," he said. Bathini is of the view that as long as the Nifty 50 is within 22,500-23,000 range, the market can be seen as being in a positive momentum.

Divi's Laboratories' shares commanded attention, surging 5% in early trading and becoming the top performer on the Nifty index. Following the company's impressive performance in the January-March quarter of FY24, brokerages have revised their price targets for the stock upward to reflect the robust earnings.