Sensex, Nifty hit new highs; banking stocks lead the way

The Sensex and the Nifty 50 jumped over a percent each to hit fresh record highs on Friday. .

The Sensex opened at 83,603.04 against its previous close of 83,184.80 and jumped over a percent to its fresh all-time high of 84,694.46. The Nifty 50 started the day at 25,525.95 against its previous close of 25,415.80 and scaled its fresh peak of 25,849.25. The gains were broad-based as the BSE midcap and smallcap indices also rose over a percent each.

The Sensex finally closed 1360 points, or 1.63 percent, higher at 84,544.31, while the Nifty 50 ended at 25,790.95, up 375 points, or 1.48 percent.

BSE-listed firms' overall market capitalisation (mcap) rose to nearly ₹472 lakh crore from nearly ₹466 lakh crore in the previous session, making investors richer by about ₹6 lakh crore in a day.

Trend remains positive

Manish Chowdhuryof StoxBox pointed out that after a bout of profit booking from higher levels yesterday, especially in mid - and small-cap stocks, the sentiment  seemingly improved in today’s trading session.

"The overnight strength in US markets has aided markets along with higher expectations of a rate cut from the RBI in future," said Mr Chowdhury.

"We believe that the overall trend in markets remains positive, and the rate cut from the US Fed should further boost flows into emerging markets, including India. Additionally, lower crude oil prices, good monsoons, and surplus liquidity with DIIs should support capital markets in the near term," Mr Chowdhury added.

According to Narinder Wadhwa of SKI Capital, the market could be pricing in better-than-expected quarterly results from key companies, and positive earnings guidance can boost market sentiment.

Five key factors behind the market drive

According to market experts, these five key factors drive the market's momentum:

Positive global cues: Major markets in the US, Europe and Asia are witnessing strong buying, influencing sentiment back home after the US Fed cut rates by 50 bps and signalled more rate cuts were in the offing.

Overnight, the Nasdaq jumped 2.51 percent, and the S&P 500 gained 1.70 percent. In Asia, the Nikkei jumped over 1.5 percent, and KOSPI rose almost a percent.

"Global markets, particularly in the US and Europe, may have shown strength, boosting investor sentiment. Positive developments in major economies often have a ripple effect on the Indian market," Mr Wadhwa observed.

The start of the rate-reduction cycle: Boosting investors' risk appetite, the US Federal Reserve cut benchmark rates by 50 bps on September 18 and hinted that more rate cuts were possible through 2026.

The US Fed projected benchmark interest rate would fall by another half a percentage point by the end of this year. Moreover, the US central bank expects to cut interest rates by a full percentage point next year and by half a percentage point in 2026.

Fed Chair Jerome Powell also underscored that the US economy was in good shape and inflation was expected to come down sustainably.

Concerns over a looming US recession eases: Concerns over a slowdown in the US economy eased slightly after the jobless claims for the week ended September 14 came in lower than expected. This seems to have comforted market participants. This suggests strong job growth in September and confirms that the economy kept growing in the third quarter.

"The good labour market data from the US indicates that the labour market is only slowing, not deteriorating. With inflation under control, the US is set for a soft landing under a declining interest rate scenario. This is positive for global equity markets," said V K Vijayakumar of Geojit Financial Services.

Banking stocks lead the gains: Banking stocks hold the maximum weight in the benchmark indices and are witnessing healthy buying, which has supported the Sensex and the Nifty 50.

On Friday, the Nifty Bank index rose nearly 2 percent to hit a fresh record high of 54,066.10. The index closed 1.42 percent up at 53,793.20, with stocks such as ICICI Bank (up 4.47 percent), Kotak Mahindra Bank (up 2 percent) and HDFC Bank (1.68 percent) rising up to 4 percent.

The Nifty Bank index has been in the green for the last seven consecutive sessions. On a monthly scale, it has risen 7.8 percent, while the Nifty has gained 2.2 percent in September so far.

Technical factor: According to Amol Athawale of Kotak Securities, the breakout texture will continue as long as the market remains above 25,500/82,700.

"On the higher side, the market could increase to 26,000-26,200/85,000-85,500. On the other hand, below 25,500/82,700, the sentiment could change, and traders may prefer to exit from long trading positions," Athawale said.

(By arrangement with livemint.com)