Benchmark indices Sensex and Nifty ended at fresh records on Friday after a dramatic 9 per cent recovery from the lows made on election results day.
Strong domestic investor buying, regime continuity, and an improved economic growth outlook propelled the market in the past three trading sessions despite outflows from overseas funds.
On Friday, the Sensex closed at 76,693, gaining 1,619 points or 2.2 per cent, while the Nifty ended the session at 23,290, up 469 points or 2.1 per cent. Both indices surpassed their previous record closing highs logged on June 3. The Sensex also made fresh intraday highs, while the Nifty fell 21 points short. The indices have gained 6.4 per cent from their June 4 close, when they plunged 6 per cent on a closing basis and 9 per cent intraday after the surprise election results, which did not give a majority to any party. During the week, the Sensex rose 3.7 per cent, the biggest weekly gain since July 22, 2022.
The Nifty rose 3.4 per cent, the best weekly gain since December 8, 2023.
The benchmark indices recorded their most significant single-day surge in nearly three years after exit polls predicted a two-thirds majority for the ruling National Democratic Alliance (NDA). However, the actual election results were weaker, leading to the recurrence of coalition days from 1989 to 2014, when the ruling party relied on its allies for survival.
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The market recovery was driven by strong domestic buying, which mitigated the selling spree by foreign portfolio investors (FPIs). Domestic institutional investors were net buyers to the tune of Rs 5,579 crore, while FPIs were net sellers to the tune of Rs 13,718 crore this week. The FPI outflow would have been higher if not for a Rs 4,391 crore investment on Friday.
The India Vix index, which climbed to 31.7 on Tuesday, ended the week at 16.8, indicating stability returning to the market. The combined market capitalisation of BSE-listed firms stood at Rs 423.5 trillion, a decline of Rs 2.4 trillion from its level on Monday when markets rallied amidst euphoria surrounding the exit poll results.
Clarity on regime continuity after NDA allies promised support for a government under Narendra Modi’s leadership eased investor concerns about political stability. However, concerns about policy continuity remain, which experts said would be eyed from the government’s first 100-day plan.
The upward revision of gross domestic product (GDP) estimates to 7.2 per cent from 7 per cent by the Reserve Bank of India (RBI) also boosted sentiment. On Friday, the RBI kept the benchmark repurchase rate unchanged for the eighth time at 6.5 per cent.
“It is economic policy that concerns the markets more than politics. The results were against the consensus view, and there were concerns about a ramshackle coalition coming to power and reversing reformist policies. But the support of allies for the NDA government gave hopes of policy continuity. Domestic investors have taken the outcome in their stride,” said U R Bhat, co-founder of Alphaniti Fintech.
Bhat said retail and high-net-worth individuals played a significant role in the market revival. Going forward, the composition of the new Cabinet and the union Budget would provide further cues to the markets.
All 30 Sensex stocks ended with gains on Friday, while only two of the Nifty 50 components ended with losses. Information technology (IT), metals, and auto stocks were among the major gainers.