Sensex, Nifty rally as investors add Rs 6 lakh crore: Key factors behind today's rise

Domestic equity market settled sharply higher on Monday ahead of the interim budget and US Federal Reserve's policy meeting outcome due later this week. Headying buying in Reliance Industries amid geopolitical concerns and banking stocks pushed the headline indices sharply higher.

For the day, BSE Sensex surged 1,240.90 points, or 1.76 per cent, to settle at 71,941.57. NSE's Nifty50 index rallied 385 points, or 1.8 per cent, to end the session at 21,737.60. In the broader markets, The BSE midcap index rose 1.7 per cent, while the smallcap index ended a per cent higher. Fear gauge India VIX shot up sharply to 15.68-levels, rising over 13 per cent for the day.

Seven Sensex stocks hit 52-week or fresh all-time highs on Monday. They included Tata Motors Ltd, Reliance Industries Ltd, Larsen & Toubro Ltd, NPTC Ltd and Titan Company Ltd. Others included Sun Pharmaceuticals Industries Ltd and Power Grid Corporation of India Ltd.

Investors added a notional wealth of more than Rs 6 lakh crore for the day as the total market capitalization of all BSE-listed companies surged to Rs 376.09 lakh crore on Monday, compared with a total valuation of Rs 371.12 lakh crore recorded in the previous trading session.

Firm global cues lifted the domestic market sentiment, as the broad-based rally pushed benchmark Sensex above the 72000-mark towards the closing stages. After last week's major sell-off triggered by FII selling, further short covering coupled with recovery in global indices aided renewed optimism in the markets, said Prashanth Tapse, Senior VP (Research), Mehta Equities.

"While markets could be choppy ahead of the interim budget later this week and credit policy announcement thereafter, any flare up in the conflict in the Red Sea and simmering tensions in West Asia can fuel volatility," he said. Here are the key factors that pushed the markets higher on Monday:

Buying in Reliance Industries
The rally in index heavyweight Reliance Industries (RIL) was the key trigger for Monday's rise on Dalal Street. Reliance was the biggest contributor on Sensex, which contributed about 544 points out of 1,240 points jump. Shares of RIL were hogging limelight at Dalal Street amid strong buying action in energy stocks following the Middle East crisis. The stock surged close to 7 per cent to Rs 2,890 on BSE.

Dovish US Fed
Traders tempered expectations of early and deep US interest rate cuts. Investors took stock of US economic data ahead of the Federal Reserve policy meeting due on Wednesday this week. Markets are currently pricing in a 49% chance of a rate cut in March, the CME FedWatch tool showed, reported reuters.

Regarding the Fed decision, no rate cut is expected, but the commentary will be keenly watched. The turbulence in the Red Sea is turning out to be a serious issue, said Dr VK Vijayakumar, Chief Investment Strategist, Geojit Financial Services.

Buying in Banking counters
Banking stocks were other key contributors towards the Monday's rally. Private lenders including HDFC Bank, Kotak Mahindra Bank, ICICI Bank and Axis Bank along with the largest PSU counter State Bank of India cumulatively combined about 330 points in the index's rally.

Budget Expectations
Modi Government will table its interim budget on Thursday, February 1, 2024. However, the interim budget will be a vote on account without major announcements capable of impacting the market. But, the market is anticipating some populist measures to push economic activity and boost consumption in the budget year.

The surge can be largely attributed to investor optimism in anticipation of the upcoming interim budget, where significant allocations are expected in key sectors like infrastructure and energy, said Sonam Srivastava, Founder at Wright Research. "This optimism is not unfounded, as government spending in these areas signals robust growth prospects, attracting investor interest."

Global Optimism
Global markets were majorly positive on Monday. European shares were at their highest since Jan 2022 and bond yields dipped, the start of a packed week with big corporate earnings, European inflation data, Federal Reserve and Bank of England meetings and US jobs numbers incoming later today.

US share futures were also steady, suggesting no immediate disruption to the S&P 500's position at all time highs, boosted by data this year showing economic growth is holding up while inflation continues to fall. Asian shares rose as new steps by Beijing to stabilise the local market outweighed the drag on sentiment from the liquidation of property giant China Evergrande.
 

Technical Setup

Nifty has surged above the dual resistances of 21,500 and 21,700. It successfully reclaimed the 20-day moving average (20 DMA) after a few days of struggle, said Rupak De, Senior Technical  Analyst, LKP Securities.

"Furthermore, the recent upward movement has propelled the index above the critical moving average, indicating a positive trend for the short term. On the higher end, it is poised to potentially reach levels around 22,100-22,150. The support level is positioned at 21,550," he said.

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