4 reasons why Sensex surged almost 1,200 points, Nifty tested 23K on May 23

Here's why the stock market rallied on Thursday, May 23: PSU bank stocks cheered RBI's dividend move; Optimism over election outcome coupled with ease in bond yields lifted NSE Nifty to a new high.

Stock market updates, May 23: Equity benchmark indices, the S&P BSE Sensex and the NSE Nifty 50, rallied sharply in Thursday's trades on the back of strong gains in banks and select index heavyweights.

On Thursday, the BSE Sensex rallied over 1,279 points to a new all-time high of 75,499.91. The BSE benchmark eventually ended the day with a solid gain of 1,197 points at 75,418.

Among the Sensex heavyweights, Larsen & Toubro, HDFC Bank, ICICI Bank and Reliance contributed almost 50 per cent of the day's gain so far.

The NSE Nifty 50 index, on the other hand, hit a new all-time high of 22,993.60, and settled 370 points higher at 22,968.

The Nifty hitting a new record is the market’s message of political stability after the elections. The rally is healthy since it is led by fairly valued largecaps., said V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services in a note.

The Nifty Midcap index too posted a record high at 19,568 in trades today. The Nifty SmallCap index quoted around 15,920; it was 50-odd points shy from its peak of 15,973.

Meanwhile, here are the four key reasons for Thursday's stock market rally.

PSBs stock lead post RBI's bumper dividend

Shares of public sector banks (PSBs), in particular, were in focus, rallying up to 3 per cent a day after the Reserve Bank of India (RBI) announced dividend payment of Rs 2.1 trillion crore for FY25. 

This development is a significant macroeconomic positive for the market, with direct implications for the fiscal deficit and bond yields, said Santosh Meena, Head of Research at Swastika Investmart in a note.

The infusion of funds is akin to an indirect rate cut for the economy, as it is expected to lead to a reduction in bond yields. Since many investment instruments are linked to government bond yields, this reduction will likely have a broad positive impact across the financial markets. The improved fiscal position could also prompt upgrades in India's economic outlook, the analyst said.

The Nifty PSU Bank index was the top gainer, up nearly 2 per cent. Union Bank of India, Bank of Baroda and Bank of India were the top gainers. India's largest state-run bank, SBI stock was up 1.5 per cent. READ MORE

Bernstein expects Nifty to top 23,000 soon

Analysts at foreign brokerage Bernstein, see a higher probability of the BJP government winning around 330-350 seats, thus driving some rally in the markets post-election results. They expect the Nifty 50 index to scale past the 23,000 mark. READ MORE

Technical outlook

Looking ahead, the Nifty index may witness further expansion. An immediate target of 23,000 is in sight, with the possibility of reaching 24,000 as the election outcome approaches. However, while large-cap stocks are expected to perform well, mid-cap and small-cap stocks may underperform from this point forward, Santosh Meena said.

The S&P BSE Sensex is seen quoting near its all-time high. Fibonacci charts suggest the presence of some resistance in the 75,200 - 75,600 range. Breakout and sustained trade above the same can trigger a swift rally for the BSE Sensex up to 78,100 levels.

FII selling slows down as yields ease

Over the last few trading days, barring May 21, selling by foreign institutional investors has slowed down. The FIIs have net sold stocks to the tune of Rs 1,813 crore in the last five trading days as against net sales of Rs 38,186 crore so far in May.

The US-10 year yield has eased to 4.43 per cent from a high of 4.73 per cent a month ago. Traders are expecting at least two rate cuts in the calendar year 2024.

Meanwhile, the 10-year bond yield in India was seen quoting around 7 per cent as against the 52-week high of 7.395 per cent.