This week is crucial for the markets as it marks the end of general election polling, along with the results season, which might result in increased volatility. In addition United States core data will be released which will be vital for the Federal Reserve’s rate cut direction, especially amidst hawkish commentaries from Fed officials and recent strong US economic data releases.
The US will also be announcing GDP and consumer confidence data while inflation and GDP of Euro Zone along with China PMI will also be key moniterables.
India will release its 2023-24 GDP data and April 2024 fiscal deficit data on Friday.
Last week, Nifty hit a fresh all-time high of 23,026 and logged its best week in over three months, amid short covering, improving investor sentiment regarding the election outcome and healthy macros, highlighted by the record dividend payout by the Reserve Bank of India.
Nifty closed with gains of 491 points, or 2.2%, at 22,957 levels. In fact, market-cap of all-listed companies crossed the $5 trillion mark, making India the 5th country to reach this milestone. Midcap Index too touched fresh highs during the week, recording gains of 1.6%. However the Smallcap Index ended on a flat note.
All sectors ended in green with metals, PSU banks and energy being the top gainers. Metal sector rallied around 4% on the back of a surge in base metal prices. The news of the record RBI dividend lifted PSU Banks while peak summer electricity demand pushed energy stocks higher. Sectors like railways and defence were in momentum on the back of impressive Q4 numbers.
Investor sentiments improved as hopes of a favourable general election outcome seems to be getting stronger with each passing polling phase. The seventh phase of polls will be held on June 1, followed by results on June 4. In addition, onset of early and above normal monsoon prediction by Skymet and IMD both along with rural demand recovery have added to the positivity.
In fact, auto, NBFC and consumer stocks gained after the RBI reported rising rural consumption for the first time in 2 years. Q4 earnings season is entering its last leg and has been healthy so far, along with a robust outlook.
FIIs who have been largely sellers in the market since April, have reduced their selling intensity off late and bought heavily last Thursday, thus pulling markets to a record high.
Volatility is likely to remain high in near term given the big event of election outcome and India VIX still hovering above 20 levels. However, we expect positive momentum to continue on the back of an improving political environment, slowdown in FIIs selling, strong domestic macros and healthy earnings growth outlook.
(The writer is Head of Retail Research, Motilal Oswal Financial Services Ltd)