Markets extend gains as govt formation nears; Vix slumps for second day

Brokerage CLSA expects the government's 100-day plan to include large orders in infrastructure and defence

Stock markets rallied for the second day on Thursday on easing political worries as the National Democratic Alliance (NDA) set in motion its government formation efforts.

The Sensex rose 0.93 per cent, or 692 points, to end at 75,074, while the 50-share Nifty index rose 201 points, or 0.9 per cent, to settle at 22,821.

The benchmark gauges have shot up 4.2 per cent in the past two trading sessions after slumping nearly 6 per cent on Tuesday after the ruling Bharatiya Janata Party (BJP) failed to cross the halfway mark in the 18th Lok Sabha elections.

The India Vix, the barometer of market volatility, slumped 11 per cent to 16.8, the lowest since May 8. The fear gauge has dropped 38 per cent in the past two days.

The broader market Nifty Midcap 100 and the Nifty smallcap rose 2.24 per cent and 3.29 per cent, respectively. The Nifty PSE index rose 3.7 per cent as state-owned companies rebounded from Tuesday's 16 per cent slump.

Among the top PSE gainers were BHEL (up 9.1 per cent), Hindustan Aeronautics (7 per cent), and Gail India (6.7 per cent). Experts said the rally was driven by hopes that the new government would continue its capex spending.

Brokerage CLSA expects the government's 100-day plan to include plum orders in infrastructure and defence. The NDA named Narendra Modi as the leader of a new coalition government after it regained power with a surprisingly slim majority.

“Some clarity has come with the formation of a coalition government, but further concerns would be about allotment of portfolios and the new agenda of the government," said Anita Gandhi, founder and head of institution at Arihant Capital Markets.

Analysts said the new government is likely to continue with its investment-led economic agenda, but it may tweak its priorities to support consumption and employment.

"We will get a better sense of the same over the next few weeks and in the FY2025 final budget. Analysts said investors will be more cognisant of valuations and earnings growth going forward," said Kotak Institutional Equities in a note.

Investor behaviour will likely change with the shift in sectors where earnings visibility is more certain, said market players.

"Days of paying any multiple for stocks in industries where big reforms are expected are gone. Rural will remain one of the strongest themes as incomes are improving, monsoon is expected to be good and election outcome will lead to increased social spending,” wrote Ashutosh Tiwari, managing director at Equirus Securities.

After pulling out about Rs 18,000 crore from the markets in the last two sessions, FPIs sold another Rs 6,868 crore worth of shares on Thursday. The sharp selling by FPIs is likely to cap upside in the near term.

Barring seven, all Sensex components ended with gains. Infosys, which rose 2.95 per cent, was the biggest contributor to the gains posted by Sensex, followed by the State Bank of India, which rose 3.5 per cent. The market breadth was positive, with 2,981 stocks gaining and 878 declining.

Investors will focus on India's monetary policy decision and the US non-farm payrolls report on Friday for further cues. (With inputs from agencies)