Bulls were back on Dalal Street on Wednesday after the outcome of state elections ended political uncertainties, and the appointment of new RBI Governor.
The 30-share BSE Sensex extended previous day's gains, rising 372.66 points, or 1.06 percent, to 35,522.67. It was in addition to nearly 200 points upside in previous session.
The 50-share NSE Nifty climbed 112.30 points to 10,661.50 while the broader markets continued to outperform frontliners with the BSE Midcap and Smallcap indices gaining nearly 2 percent each.
The market breadth also remained in favour of bulls as nearly six shares advanced for every share declining on the National Stock Exchange.
"As the hangover of state election results recedes, we expect the focus to revert to fundamentals, albeit with continued elevated volatility," Gautam Duggad of Motilal Oswal said.
He further said overall, macros have eased out for India in the last two months with the correction in crude oil prices.
From an earnings perspective, Duggad expects domestic cyclicals driven by financials to boost earnings in second half of FY19 taking over from global cyclicals which were driving earnings growth lately.
All sectoral indices also traded in the green with bank, auto, FMCG, metal and realty rising 1-3 percent.
Here are five factors which are pushing the market higher:
Global Cues
Asian markets were trading higher after a news reports indicated that China is expected to cut tariffs on cars made in the US to 15 percent from the current 40 percent. Japan's Nikkei, Hong Kong's Hang Seng and South Korea's Kospi gained 1-2 percent while China's Shanghai Composite was up 0.24 percent.
The gains in global peers were also on account of improvement in trade relations between world's largest economies US and China.
Election Uncertainty Ends
The uncertainties over five states poll results finally ended after the Congress party has made strong gains in key states, winning in Rajasthan and Chhattisgarh, and decided to form the government in Madhya Pradesh by taking support from others.
On the other hand, BJP lost in all state elections. TRS won in Telangana and MNF in Mizoram.
Now all focus will shift to Lok Sabha elections which will take place in 2019 and analysts expect volatility to continue in 2019 as there could be close fight between Congress and BJP after results of five state elections.
"There is no direct co-relation between the outcome of these 'semi-final' state polls and the Lok Sabha polls (2004, 2009 and 2014 election results point toward the same). But we expect an intense tug-of-war in the Lok Sabha polls, especially after the strong performance of Congress," Duggad said.
New RBI Governor
The government quickly appointed Shaktikanta Das as new RBI governor on Tuesday, easing concerns raised after the surprise exit of Urjit Patel on Monday.
Now the market will look at Das' take on liquidity, corporate governance and prompt corrective action.
"Now it is upto Shaktikanta Das to prove his credentials. IAS officers like Subbarao and YV Reddy have proved themselves as great RBI governors who refused to toe the government's line," VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services told Moneycontrol.
Das with his rich experience in finance and economic management and expertise in team management has the competence to heal the wounds that have risen from the friction between the central bank and the government, he added.
Crude Oil
Crude oil prices remained in favour of India which imports around 85 percent of requirement.
Brent crude futures, the international benchmark for oil prices, continued to be rangebound around $59-62 a barrel after falling more than 28 percent from $86.29 a barrel touched on October 3, 2018.
Experts said if the crude oil prices remain around these levels for couple of months or more then earnings could be healthy in second half of FY19.
Nilesh Shah, Managing Director at Kotak Mahindra Asset Management Company believes the market looks better as long as oil is softer, interest rate is softer which will support corporate earnings and economy and which will be ultimately reflected in stock market.
Technical Outlook
The Nifty50 managed to hold psychological 10,500 levels on Tuesday, the counting day for five states polls.
The following rally after holding 10,500 levels on Wednesday and hitting near term resistance 10,650 levels indicated that the market bottomed out and seems to have priced in all negatives related to elections and RBI, experts said, adding the further rally is likely only after the index decisively breaches 10,750 on closing basis.
"With a slew of events such as US FED meet outcome, RBI meeting lined up during December, indices are likely to be volatile. The Nifty is likely to trade in a broad range of 10600-11200, with a positive bias," Rajiv Ranjan Singh, CEO - Karvy Stock Broking told Moneycontrol.
The Nifty50 filled its Monday's bearish gap present in the zone of 10,558–10,599 level.
"In such a scenario Nifty50 can be expected to test its 200-day moving average whose value is present around 10,750 levels. Only on a close above 10,750 levels momentum in near term shall get strengthened," Mazhar Mohammad, Chief Strategist – Technical Research & Trading Advisory, Chartviewindia.in said.
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Source: Moneycontrol
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