Sensex jumps 2,300 pts, Nifty above 22,600: Why markets rallied on June 5?

The recovery came after the ruling Bhartiya Janata Party (BJP) looked firm in securing support from its allies to form a coalition government

Stock market updates, June 5: The Indian benchmarks Sensex, and Nifty saw a sharp recovery on Wednesday after the ruling Bhartiya Janata Party (BJP) looked firm in securing support from its allies to form a coalition government.  

The BSE Sensex jumped over 2,400 points intraday, hitting a high of 74,535. The Nifty50, meanwhile, hit the day's high level of 22,670.

At close, the BSE Sensex index was up 2,306 points, or 3.2 per cent, to end at 74,385 levels, while the Nifty50 topped the 22,600-mark to close at 22,620, up 736 points or 3.36 per cent. 

The benchmark Sensex plunged 4,389 points, while Nifty50 fell 1,379 points on Tuesday, as the NDA's tally, predicted to cross 350-400 seats by pollsters, fell below the 300-mark at 292 seats out of a total 543 seats. While the opposition party INDIA alliance secured 234 seats causing heavy selling in the Indian stock market. 

Wednesday's recovery, however, came as the BJP-led NDA alliance managed to secure verbal promises from its two major allies including Chandrababu Naidu’s led TDP and Nitish Kumar’s Janata Dal United (JDU), cementing its place in parliament and restoring faith in investors, while brushing away any fears of a hung parliament or a change in government.

TDP secured a 16 seats, JDU 12 and the BJP own its own won 240 seats in the 2024 general elections. According to reports, both alliance partners will hand in letters of support to the ruling party today, in a NDA alliance meeting in New Delhi at 5 PM. 

"As all the allies were established as pre-poll ones and there were seat-sharing arrangements, they are likely to stick to NDA and go ahead with the formation of the government. Over the next few days, there could be a lot of action around NDA staking the claim to form the government, and thereafter a lot of noise could be around key portfolio/ministry allocation which will keep the equity markets volatile," said Rupen Rajguru, Head Equity Investments and Strategy, Julius Baer India. 

On technical charts, according to Anand James, chief market strategist at Geojit Financial Services, the immediate support for the Nifty index is placed at 21,940.

"Should we head higher, the index may face resistance at 22,280-22,350 region or 22,600. A break below the support will push the index towards 20,900," he said.

That apart, Sensex heavyweights such as Reliance Industries (RIL), HDFC Bank, Infosys, Mahindra and Mahindra, HUL, and ITC helped the markets recoup from Tuesday's fall. 

HUL, M&M, Asian Paints, Nestle India and Kotak Mahindra Bank soared in the range of 4-6 per each. Others such as RIL, TCS, Wipro, Bajaj Finance, Bharti Airtel and Tata Motors surged by 1-3 per cent each. 

The broader markets also rebounded, with the MidCap index rising 2.73 per cent, and SmallCap surging 1.73 per cent. Among sectoral trends, Nifty Auto hiked by 3.61 per cent, Nifty Pharma by 3.49 per cent, Nifty IT by 2.61 per cent and Nifty FMCG by 4.44 per cent. 

Investment strategy

According to analysts, defensives including FMCG, IT and healthcare will outperform capex oriented sectors in the near term. Additionally, some of the sectors with strong narratives - PSUs, defense, railways will take a breather and can potentially see some de-rating from the current near all-time high valuations.

"Over the medium to longer term, the structural story remains intact including earnings, capex and credit growth. Hence, we continue to remain constructive on the long term potential of the Indian market and maintain our overweight stance on Financials, Autos, Real Estate, and select Industrials/Manufacturing companies," Rajguru of Julius Baer India said.