Sensex soars nearly 1,400 points this week; Here's what led to the rally

Equity markets staged a swift rally this week with the BSE Sensex index soaring 1,383 points and BSE's market-cap topping the historic $4 trillion-mark for the first time.   

On Friday, December 1, the Sensex jumped 569 points to an intra-day high of 67,557. The NSE Nifty benchmark scaled a new peak of 20,285 the same day, in a little over two months, since its previous record high of 20,222 made on September 15. 

November was a blockbuster month for the Nifty index, which rose 5.5 per cent, the most since July 2022.

The rally came after a bout of weakness that began from the second half of September and lasted for the whole of October due to soaring US bond yields and sharp foreign investor outflows. 

So, what changed for the markets and why this week's rally?

Dovish Fed officials: Early this week, domestic equities rallied after Fed Governor Christopher Waller, a known 'hawk', shifted gears and sounded what markets believed to be dovish, as he called the current policy well positioned to slow the US economy and bring inflation to the 2 per cent target.

Waller also flagged a policy pivot saying if inflation continues its slide for the next 3-5 months, the central bank could begin rate cuts. 

Positive macro data: The week's rally has been helped by supportive macro data both in India and overseas.

The Indian economy continues to be resilient as its Q2 GDP grew 7.6 per cent, exceeding expectations by a wide margin led by manufacturing and construction activities, which expanded by 13.9 per cent and 13.3 per cent, respectively.

Calling the growth in the two segments impressive, V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services said this could push the FY24 GDP growth to above 6.8 per cent, beating the RBI’s projection of 6.5 per cent.

"Since manufacturing and construction have done well, the bulls will focus on capital goods stocks like L&T and construction-related stocks. Cement stocks may attract renewed buying interest. Autos will continue to do well," he said. 

In the US too, the core personal consumption expenditures price index, which is the Fed’s favorite inflation gauge, saw an annual gain of 3.5 per cent in October, the slowest since April 2021. 

Consumer spending rose 0.2 per cent, a slower pace after an unrevised 0.7 per cent gain in September. 

In Euro zone, the core inflation came in lower than expected in Nov, dropping to 3.6 per cent from 4.2 per cent in October. Headline number cooled to 2.4 per cent from 2.9 per cent in October. 

FPIs shift gears: Increased global bets that the Fed's rate hike cycle is most likely over has cooled off the surging yields in the US, leading foreign investors' return to emerging markets like India.

After pulling out Rs 14,768 crore and Rs 24,548 crore in Sept and Oct, respectively, FPIs have turned positve and bought shares worth Rs 9,001 crore in November.