There were five reasons why the market in India has rallied. These include factors such as a global rally, economic factors, gain in financials, pre-Budget up move as well as technical factors.
The Indian market began the week on a very strong note, with broad-based gains seen across sectoral indices. Sensex and Nifty clocked fresh record highs, hitting 34,900 and 10,700 during the day’s trade.
In the morning trade, the Sensex had gained over 350 points, while the Nifty had gained almost 100 points to trade comfortably above 10,750. In fact, the Nifty Bank too gained around a percent, adding to the momentum on the D-Street.
On a stock-specific basis, Capital First rose nearly 8 percent in early trade on Monday to hit a fresh 52-week high of Rs 902 after IDFC Bank announced its merger with the non-banking financial company (NBFC) over the weekend. The share swap ratio has been fixed at 139:10, which means 139 shares of IDFC Bank will be allotted for every 10 equity shares of Capital First.
Meanwhile, shares of HDFC gained around 7 percent intraday on Monday as investors cheered the NBFC’s fundraising plan. Over the weekend, it announced that the Board had approved fund raising worth Rs 11,301 crore by issuing 6.43 crore shares at Rs 1,726.05 per share to investors, including global private equity biggie GIC Singapore, KKR and Premji Invest.
However, broadly, there were five reasons why the market in India has rallied. These include factors such as a global rally, economic factors, gain in financials, pre-Budget upmove as well as technical factors. Moneycontrol lists out five of these factors.
Economic factors
The Street is taking positive economic data in its stride. Industrial output hit a 25-month high in November, soaring 8.4 percent, led by robust growth in manufacturing as well as inventory rebuilding post the festive season.
Meanwhile, retail inflation, measured by Consumer Price Index (CPI), hit a 17-month high, growing 5.2 percent in December, due to hardening housing, fuel and food prices. In November, it hit a 15-month high at 4.88 percent. What may worry the street is the inflation number inching towards RBI’s upper tolerance level at 6 percent.
Meanwhile, the wholesale price inflation (WPI) for the month of December has come in at 3.58 percent.
Global markets
A rally in global markets is also spilling over to the Indian markets. Major indexes in Asia notched gains on Monday after Wall Street closed out last week at records and the dollar continued to struggle.
The Nikkei 225 rose 0.26 percent as financial names rose in the session. Automakers and technology stocks proved to be a mixed picture.
Across the Korean Strait, the Kospi tacked on 0.27 percent. Heavyweight Samsung Electronics, which had fallen for most of last week on the release of poorer-than-expected profit guidance, gained 0.83 percent. Other tech names, however, were in negative territory, with SK Hynix declining 2.15 percent.
Pre-Budget rally
Analysts tracking D-Street say that we are in the midst of a pre-budget rally which could stretch towards 10,900 by Budget Day.
The Budget session will start from January 29 and the final Budget will be president by the finance minister on February 1, Thursday.
The rally is not over and investors should maintain their long positions on the Nifty as the rally is likely to stretch towards 11000 ahead of the Budget, suggest experts.
“Yes, we are living the pre-budget rally. The Nifty was in a pattern of a wedge and the current up-move is the final leg of it. The Nifty is not over-heated yet and there still exists room for 11,000-11,200 before we witness a halt,” Shubham Agarwal, CEO & Head of Research at Quantsapp Private Limited told Moneycontrol.
Rally in financials
Led by gains in HDFC and ICICI Bank, the market on Monday saw gains in banking indices as well. HDFC, on the back of its fundraising plan, gained over 6.5 percent intraday, while ICICI Bank has surged around the same as well.
Based on the rally in ICICI Bank, and a spillover to HDFC Bank from HDFC, the Nifty Bank hit a fresh record high and clocked 26,000 for the first time ever.
Meanwhile, PSU banks too have gained, but not at par with the Bank Nifty. The index is up around 0.20 percent.
Technical factors
The Nifty surpassed its crucial resistance level placed around 10700-10,750 on Monday which opens up upside towards 10,800 levels. The Nifty is trading above all the crucial short term moving averages which is a bullish sign.
At the current juncture, the Nifty has made a short-term support at 10,580 – 10,600 levels and below that the strong support is placed in the zone of 10,400 – 10,440.
On the flipside, 100% extension level of the previous rally comes at 10,836 level, which may act as a strong resistance for the Nifty.
“On the derivative front, we witnessed decent writing in 10400 – 10700 put options in the last few days along with unwinding from the call writers, which indicates that the support for the Nifty is inching higher towards 10500 – 10550 levels.
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