Sensex records sharpest May-month rally in seven years; gains 6.5%

The S&P BSE Sensex posted its biggest May month rally in the past seven years after a sharp surge in consumer discretionary, financials and Reliance Industries (RIL) stock. And if analysts are to be believed, there is still more room for an upside, albeit amid minor corrections on the way. The optimism is despite the second wave of Covid pandemic that brought the Indian economy to a near standstill yet again in 2021. This time, however, analysts believe the impact to be less severe as compared to 2020.

“The risk-reward is still favorable for equities given the US Fed intervention to control yields. Any sell-off could offer a good buying opportunity as the medium-term outlook is solid. Our cyclical bias continues with preference for mid-caps over large-caps,” wrote Jitendra Gohil, head of India equity research at Credit Suisse Wealth Management in a recent note with Premal Kamdar.

The S&P BSE Sensex gained 6.5 per cent, or 3,154 points in May on optimism on economic rebound and progress in pandemic fight is expected to evince buying interest across major sectors. In the process, the Sensex witnessed its sharpest May month gain during the past seven years. Earlier in May 2014, the Sensex had rallied 8 per cent during the month. The benchmark index also set to post its biggest gain in percentage terms in the past five months. In December 2020, it had gained 8 per cent after an 11.4 per cent surge recorded in November.

Among the index stocks, State Bank of India (SBI) was the top gainer, surging 20 per cent during the month, after reporting another strong quarterly performance in March quarter (Q4FY21). ICICI Bank, IndusInd Bank, HDFC Bank and Bajaj Finserv from the financial sector outperformed the Sensex and gained over 7 per cent during the month.

Asian Paints rallied 17 per cent on expectation of strong volume growth to sustain, riding the potential demand shift from the unorganised segment. Maruti Suzuki India, Bajaj Auto, Larsen & Toubro, Nestle India and Reliance Industries were up between 8 per cent and 10 per cent.

Global cues, too, were positive as focus turned to a multi-trillion dollar spending boost by the Biden administration. Even hawkish comments from the Bank of England official boosted market sentiment. Back home, India recorded its lowest daily count of new Covid-19 cases in the last one and half months.

Analysts at Morgan Stanley believe that India's second wave may have peaked, and the market is now looking at how quickly the wave descends in addition to how much the vaccination can be ramped up. In their most aggressive target, they see the Sensex at 61,000 levels by December 2021.

“The loss of human life has been enormous, but the second wave is likely to have a lower economic impact given the lower stringency of lockdowns compared to last year. At the margin, the equity market will be assessing the shift in vaccine supply as a key input,” wrote Ridham Desai, head of India research and India equity strategist at Morgan Stanley in a coauthored report with Sheela Rathi and Nayant Parekh.

The overall market structure, according to those at Motilal Oswal Financial Services, remains positive as fresh Covid cases continue to decline and investors are upbeat about the unlocking of the economy in June which will help revive commercial activities. “Many states are likely to follow the footsteps of Delhi and reopen their economy soon. Hopes of further stimulus by the government is also bolstering investor confidence. Thus, as the second Covid-19 wave continues to recede in India and pace of vaccination expected to pick up going ahead,” Siddhartha Khemka, head of retail research at Motilal Oswal Financial Services said.

COMPANY	LATEST	1-MONTH BEFORE	GAIN(%)
St Bk Of India	424.25	353.45	20.03
Asian Paints	2975.05	2540.10	17.12
ICICI Bank	662.20	600.40	10.29
Maruti Suzuki	7087.35	6459.80	9.71
Bajaj Auto	4198.45	3831.25	9.58
Larsen & Toubro	1465.55	1340.20	9.35
Nestle India	17692.70	16311.10	8.47
IndusInd Bank	1013.45	934.95	8.40
Reliance Industries	2160.45	1994.45	8.32
NTPC	110.50	102.60	7.70
HDFC Bank	1516.40	1412.20	7.38
M & M	807.90	752.85	7.31
Titan Company	1594.90	1491.95	6.90
Bajaj Finserv	11800.00	11039.50	6.89
ITC	216.60	202.70	6.86
Tech Mahindra	1025.50	961.75	6.63
UltraTech Cem.	6685.10	6271.60	6.59
H D F C	2553.55	2420.15	5.51
HCL Technologies	945.20	899.50	5.08
Axis Bank	750.25	714.50	5.00