Sensex, Nifty hit all-time highs: Five factors behind the rally

Benchmark equity indices hit fresh all-time highs today amid rally across global markets after Democrat Joe Biden defeated Donald Trump in the US Presidential election.

Extending gains for the sixth straight day, Sensex jumped 632 points to hit an all-time high of 42,535, while Nifty gained 182 points to touch a new high of 12,445.

In six sessions, investors have gained Rs 8.28 lakh crore led by rally in banking and IT stocks.  

All Sensex stocks were trading in green led by ICICI Bank, Infosys, HCL Technologies, Axis Bank, HDFC Bank and Hindustan Unilever.

Here's a look at five factors that took Sensex and Nifty to all-time high today:

1. Global markets

In the Asia Pacific, markets in Japan, South Korea, Australia and Hong Kong were trading with healthy gains, after Democrat Joe Biden's election to the White House raised expectations of fewer regulatory changes and more monetary stimulus. MSCI's broadest index of Asia Pacific shares outside of Japan jumped 1.3%, the highest since January 2018.

Wall Street stocks closed mostly lower Friday, ending a four-day winning streak as investors reacted to Democrat Joe Biden's win against incumbent Donald Trump in the US presidential race. But despite the lacklustre Friday, the last week was the best since April with a gain of 7.3% for the S&P500 index.

Jyoti Roy- DVP- Equity Strategist, Angel Broking said,"In the US elections the Democratic Party candidate Joe Biden is all set to be the next US President though the results are most likely to be challenged by the incumbent president in the US Supreme Court. While the blue wave which predicted a clean sweep for the democrats would have been the most preferred outcome of the US elections we believe that the current outcome is still acceptable as it would give the new president enough room to implement his policies."

He added,"Post the US elections focus will shift to progress on the second US stimulus package and it is expected that the democrats will come to an agreement with the republicans regarding the size of the package soon. There is also expected to be a significant shift in foreign policy with the US taking a less combative tone under the new president which will be good for global trade. Though the US may maintain a relatively tough stance on China we expect significant improvement in relationship with the rest of the world which would be good for global equities.

Weakness in American currency against its key rivals and significant foreign fund inflows also boosted investor sentiment, traders said.

Investors will rejoice Democrat Joe Biden's US presidential election win as India is likely to benefit from improved relations with the US as both countries attempt to neutralise the rising power of China.

Further, global stocks have gained $5.5 trillion in market cap during the US election week equalling the GDP of Japan. Market cap of global stocks is now worth $93.5 trillion, the highest value in history, and equal to 106.6% of global GDP.

2. Positive economic activity

Taking cues from the US, Asian markets traded in positive territory amid improving macroeconomic data, boosting hopes that the global economy is coming back to track.

In the US, markets closed lower on Friday even though remained positive for the week as investors took cues from October jobs data. The Labor Department on Friday said the economy added 638,000 jobs in October from a revised 672,000 jobs in September. The Labor Department also said the unemployment rate dropped to 6.9% in October from 7.9% in September.

Meanwhile, China's exports rose 11.4% in October YoY.

On the domestic front, investors will keep an eye on the Consumer Price Index (CPI) and Index of Industrial Production (IIP) for September, which are slated to be released on November 12.

3. Q2 earnings

Banking stocks were the top gainers today. Among sectoral indices, IT, metal and Bank Nifty rose around 2%. Barring metal index, all sectors were trading in green.

Strong September quarterly earnings announcements by lenders such as ICICI Bank, SBI and Axis Bank have boosted banking stocks for the sixth straight session. Pharma stocks were also rising today after drugmaker Divi's Labs reported a higher quarterly profit.

Oil India, IndiaMART InterMESH, Bayer Cropscience, Delta Corp, Dredging Corporation of India, Equitas Small Finance Bank, Honeywell Automation, JK Cement, NOCIL, Parag Milk Foods, PC Jeweller, PSP Projects, PTC India, Sun Pharma Advanced Research Company, SREI Infrastructure Finance, VIP Industries, Zuari Agro Chemicals among others will report September quarter earnings today.

IT stocks rallied post the outcome of US presidential elections as a Biden win will likely offer some respite to the Indian IT workers hit by H1B visas curbs.  According to reports, the Biden government is likely to reverse some decisions of the outgoing Trump rule, including that of the H-1B. Indian professionals will gain if the government raises the number of high-skilled visas.

4. FII inflows

Traders said sustained foreign capital inflows into the domestic market also lift sentiments. Foreign portfolio investors (FPI) have infused net Rs 8,381 crore into Indian markets in first five trading sessions of November, as participants grew more confident in view of resumption of business activities and better than expected quarterly numbers.

In October, overseas investors were net buyers with Rs 22,033 crore investment in Indian markets. Himanshu Srivastava, Associate Director - Manager Research, Morningstar India, " Among other factors, the expectation of the yield softening further on the back of recent measures announced by the RBI would have also attracted FPI investment."

"With MSCI announcing a rejig in the foreign ownership limits in the MSCI global indices for Indian stocks, Indian equities may witness increased investments from FPI," he added.   

Foreign portfolio investors (FPIs) bought shares worth Rs 4,869.87 crore, while domestic institutional investors (DIIs), were net sellers to the tune of Rs 2,938.66 crore in the Indian equity market on 6 November, provisional data showed.

5.Technical outlook

The bulls continued their march on Dalal Street and helped benchmark Nifty50 register a positive trend for the sixth session in a row today, with both Sensex and Nifty hitting new highs.

On markets opening --Manish Hathiramani, proprietary index trader and technical analyst, Deen Dayal Investments said," As expected on Friday, the trend of the Nifty remains strong with a fierce upside momentum. After crossing the hurdle of 11900, there has been no looking back. Strong support lies at 12100 and if the Nifty crosses 12500 which is the weekly resistance level, we can expect it to climb towards 12650."

Sameet Chavan, Chief Analyst-Technical and Derivatives, Angel Broking said," Technically, we can see a 'Bullish Flag' breakout happening along with a 'Breakaway Gap' on a daily chart. It is considered a strong development and hence, we are likely to move beyond previous highs soon. So, 12,430.50 is the first level to watch and post then the theoretical target of the 'Flag' pattern is around 12,700. Further levels can be projected as we move forward. On the flip side, Thursday's gap area of 12,027.20 - 11,929.65 should act as strong support. This rally can be considered a healthy one because almost all sectors have contributed to it and financial space has dominated it along with the late participation from the broader market.

Geojit Financial Services said in its report," The 12380 view that has been on discussion all through last week should mature fully today. Patterns allow for some more follow-through gains, but with that, Nifty could fast be moving into a PRZ, also made significant by the negative divergence, which has been getting ignored lately. 12800 is a potential reversal zone, while a direct fall below 11900 could also be an alternate sign towards a collapse."

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