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Sensex hits fresh record high, Nifty tops 11,900; 5 reasons behind market rally

Benchmark indices extended their dream run on the expiry of October futures and options contracts, with BSE Sensex ending 77.18 points higher at 40,129 and the NSE Nifty closing 33.35 points higher at 11,877.45.

twitter-logo BusinessToday.In        Last Updated: October 31, 2019  | 19:09 IST
Sensex hits fresh record high, Nifty tops 11,900; 5 reasons behind market rally
During the day's trade, Sensex hit its all-time high of 40,392, surpassing its earlier record of 40,312 touched on June 4.

Extending its gains for the fifth straight session, Indian equity market indices closed on a bullish note, tracking massive foreign fund inflows amid positive domestic and global cues.

Benchmark indices extended their dream run on the expiry of October futures and options contracts, with BSE Sensex ending 77.18 points higher at 40,129 and the NSE Nifty closing 33.35 points higher at 11,877.45.

During the day's trade, Sensex hit its all-time high of 40,392, surpassing its earlier record of 40,312 touched on June 4. Nifty hit an intraday high of 11,927, which is 176 points short of its all-time high of 12,103 touched on June 3.

1. Foreign portfolio investors turned bullish

Amid positive cues, Wednesday saw massive net buying by foreign portfolio investors (FPIs) of Rs 7,192.42 crore from Indian equities. Analysts said news on a rate cut for dividend distribution tax and buyback tax helped in fuelling further buying by FIIs.

After the sharp pull-back by overseas investors, in July and August, the market saw a revival in foreign fund inflows in September and October.

This was on the back of the government's decision to cut corporate taxes. The sustained revival in overseas flows in the last two months have turned out to be a big sentiment booster for the domestic equities.

Asian peers also ended on a positive note. Further improvement in the global risk sentiment amid progress in the US-China trade talks and Brexit have strengthened market optimism recently. Additionally, expectations of further tax rate cuts also helped the bullish FII trend.

2. Strong earnings

Better-than-expected earnings from index heavyweights like HeroMoto, Bajaj, Marico, SBI, L&T, JSW Steel, Axis Bank, Asian Paints and ITC proved estimates wrong and declared results 18-20% better than consensus.

This has turnaround the October trend for indices this year with Nifty rising 3.2%, where Nifty has returned a negative 1.2% return on an average in the past 29 years on October month. The second quarterly results improved this year's results compared to the earlier quarter second earnings.

The reduction in the corporate tax rate also shown its impact on the profitability of companies and resulted in pocketing in strong margin improvement for the companies this quarter.  

"Market is clearly in a positive setup with festive season seeing improvement in demand and corporate tax rate cut providing the much-needed earnings boost," quoted Naveen Kulkarni, Head of Research, Reliance Securities.

"Considering there is likely sequential improvement and earnings visibility, we believe the market will continue to trend upwards. We have an April 2020 Nifty target of 12,800," he added.

3. Tax cut plan

There is wide speculation in the market that the government may abolish dividend distribution tax, securities transaction tax and long-term capital gains tax on shares, which propelled stocks higher.

"Market is positive on expectations of fresh reforms from the government and change in the long-term capital gain tax in the future", quoted Vinod Nair, head of research at Geojit Financial Services.

Hopes of further reforms by the government like strategic disinvestment through PSU stake sale have kept investors excited too.

4. Rate cut by Federal Reserve

The Indian equities were also boosted by an interest rate cut by the Federal Reserve. The US Federal Reserve on Wednesday cut rates for the third time this year by 0.25% to between 1.50% and 1.75%, a move that was widely expected.

"We believe that monetary policy is in a good place," Fed Chair Jerome Powell said.

Meanwhile, the Bank of Japan kept its monetary policy steady on Thursday.

5. October F&O contracts expiry

Domestic equity market saw surge in buying ahead of the expiry of October futures and options contracts. The benchmark indices Sensex and Nifty ended close to their all-time highs in today's trade.

While Nifty moved lower by 998 points in June, July & August expiry, it gained 896 points over September & October series this year.

By Rupa Burman Roy

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