Stock market rally: What is driving your Sensex, Nifty today? Here are key factors

Benchmark stock indices Sensex and Nifty climbed over 1 per cent each in Thursday's trade, led by buying in banking and IT shares. Stocks gained as S&P500 futures jumped after stronger-than-expected Nvidia results and investors chose to ignore hawkish Fed minutes. Besides, analysts said the record Rs 2.11 lakh crores dividend from the RBI would give an additional 0.3 per cent of GDP fiscal room to the government. 

"This means the government can reduce its fiscal deficit and step up infrastructure spending. Bond yields have declined sharply, reflecting lower borrowing by the government. A decline in bond yields is positive for banking stocks," said V K Vijayakumar, Chief Investment Strategist, Geojit Financial Services.

The RBI infusion of funds is akin to an indirect rate cut for the economy, as it is expected to lead to a reduction in bond yields, said Santosh Meena, Head of Research at Swastika Investmart. "Since many investment instruments are linked to government bond yields, this reduction will likely have a broad positive impact across the financial markets. The improved fiscal position could also prompt upgrades in India's economic outlook," he said.

Meanwhile, the continuous decline in crude oil prices, which fell by nearly 4 per cent this week, has raised expectations of a reduction in the US inflation figures. This potential mitigation of inflation could prompt the U.S. monetary authorities to lower the key benchmark rate sooner than anticipated, said Vishnu Kant Upadhyay, AVP- Research at Master Capital Services.

To be sure, Thursday's rally in the market was not broad-based, as 1,839 stocks went up on BSE while 1,896 stocks declined so far. BSE Midcap and Smallcap indices edged up. 

ICICI Bank Ltd, HDFC Bank Ltd, Axis Bank Ltd and State Bank of India were among top contributors to the BSE Sensex rally, as the index surpassed the psychological mark of 75,000 briefly. The BSE Sensex was eyeing its record high of 75,124.28. Nifty was trading at 22,837, up 239.20 points or 1.06 per cent. IT stocks such as Tata Consultancy Services Ltd and Infosys Ltd also participated in Thursday's gain, and so did engineering and construction major Larsen & Toubro. 

There is a view that the recent election-related investor concerns were unwarranted. Bernstein expects a short-term stock market rally either leading into elections or the week after results and a potential breach of 23,000 on Nifty, if the Prime Minister Narendra Modi is re-elected. That said, the brokerage sees profit booking thereafter, as the reality of execution and valuations emerge. 

Bernstein sees a higher probability of around 330-350 seats for NDA, which may drive some rally in the markets post-election results (or heading into it). It sees a short-term breach of 23,000 on Nifty, but sees a swift profit booking brings it back below that level.

Stocks gained despite hawkish Fed minutes. "Fed minutes emphasised that rates could be kept high for some time as inflation has been sticky. Some officials questioned whether rates are sufficiently restrictive, and a few indicated a willingness to tighten policy further," said Radhika Rao, Executive Director and Senior Economist at DBS Bank.

That said, DBS Bank noted that FOMC discussions were based on the stronger labor market and inflation data in Q12024 and excluded the disappointing nonfarm payrolls or CPI inflation in April.