Markets scale fresh peaks on rate cut bets, Sensex jumps 372 points

Equity benchmark indices -- Sensex and Nifty -- hit new highs for the second consecutive day on Thursday as the markets wager on aggressive interest rate cuts by the Federal Reserve next year.

The Sensex began the session with a new high and rose to 72,484.34, to end at 72,410, a gain of 372 points or 0.5 per cent.

The Nifty gained 124 points and ended the session at 21,779, a 0.6 per cent gain. Both the indices hit fresh highs on intraday and closing basis.

In December, the Nifty ended ten sessions with new highs and Sensex on nine sessions. On an intraday basis, the Nifty hit new highs in 13 sessions and Sensex in 11.

In 2023, the Sensex gained 19 per cent, and the Nifty surged by 20.3 per cent.

The Indian equity markets have been rising this month due to expectations of rate cuts by central banks, substantial macro numbers, and robust foreign portfolio investor (FPI) flows.

The rate cut expectations were further strengthened after the US Federal Reserve's preferred inflation gauge eased in November.

The 10-year US bond yield, after declining 2.6 per cent in the previous session, gained a bit and was trading at 3.8 per cent.

A strong demand for bonds indicates investors want to lock in attractive yields before the expected Fed cuts.

Investors are stepping up bets, hoping the Fed will cut rates as early as  March next year.

Some analysts have warned that rate cuts may not happen at the pace markets have priced and about the elevated valuations in the small and mid-cap stocks.

“The indices are not overpriced even at this level. But many retail investors are thronging the market and lapping up small and mid-cap stocks, which is a concern. The institutional investors and a section of savvy investors have shifted focus to large caps because of elevated valuations in the broader markets,” said Chookalingam G, founder of Equinomics.

There are also concerns about FPI flows shifting to China if the economy revives after the stimulus measures by the Chinese government and geopolitical tensions if they escalate, driving up commodity prices.

Chinese equities gained on Thursday amid value buying in some of the worst-performing sectors. 

The market capitalisation of all the BSE-listed companies hit a new high at Rs 363 trillion. So far in December, it increased to Rs 27 trillion. 

After rising to a nine-month high in the previous session, the volatility index eased a bit and was trading at 15.1. More than two-thirds of Sensex stocks gained. 

Reliance Industries rose 0.7 per cent and was the biggest contributor to Sensex gains. All the sectoral indices of BSE, barring five ended the session with fresh highs.

“The rotational buying in heavyweights across sectors is helping the index inch higher, and we expect the trend to continue. Besides, favourable global cues further add to the positivity. We thus reiterate our bullish view and suggest continuing with a ‘buy on dips’ approach,” said Ajit Mishra, SVP, technical research of Religare Broking.