Nifty above 22,900: What next for the index as poll results approach? Experts advise what investors should do now

Nifty reclaimed record high, gaining over 1.5%.

Indian benchmark indices ended at record closing highs on Thursday with both the benchmarks Sensex and Nifty surging over 1.6 percent each. Both the benchmarks crossed significant levels in intra-day deals today. Sensex almost hit the 75,500 mark while Nifty crossed the 22,900 mark.

The surge comes after the Reserve Bank of India (RBI) announced a substantial ₹2.1 lakh crore dividend to the government. This development is a significant macroeconomic positive for the market, with direct implications for the fiscal deficit and bond yields.

"The 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. 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," said Santosh Meena, Head of Research at Swastika Investmart Ltd.

Read here: Record high! These 5 heavyweights contributed over 50% to Sensex's 1,115-point run

S&P BSE Sensex ended 1,197 or 1.61 percent higher at 75,418.04. In intra-day deals, the index hit a record high of 75,499.91, up 1,279 points from yesterday's close.

Meanwhile, the broader Nifty surged 370 points or 1.64 percent higher to end at 22,967.65. It also hit a new high of 22,993.60 in intra-day deals, up 396 points from its previous close.

Apart from the RBI's record dividend payout, a surge in heavyweights, especially banks, better-than-expected Q4 earnings, increased certainty surrounding the election outcome, fall in crude oil prices, strong domestic investor buying and reduced foreign investor selling in the last few days also aided the sentiment.

Read here: Why did the Indian stock market rise today?- explained with 5 key factors

"Market sentiment, particularly in the banking sector, improved substantially following the Reserve Bank of India's announcement of a ₹2.11 lakh crore dividend payout to the government for FY24, which exceeded market expectations. This dividend payout is expected to help the government reduce its fiscal deficit and increase capital expenditure. Additionally, the continuous decline in crude oil prices, which fell by nearly 4 percent this week, has raised expectations of a reduction in the U.S. inflation figures. This potential mitigation of inflation could prompt the U.S. monetary authorities to lower the key benchmark rate sooner than anticipated," explained Vishnu Kant Upadhyay, Assistant Vice President - Research and Advisory, Master Capital Services.

Stocks and sectors

On the BSE Sensex, only three stocks—Sun Pharma, Power Grid Corp., and NTPC—closed in the red. The top gainers were Mahindra & Mahindra, Larsen & Toubro, Axis Bank, Maruti Suzuki India, and UltraTech Cement. On the Nifty 50, only six stocks—Sun Pharma, Power Grid Corp., Hindalco Industries, Coal India, NTPC, and Tata Consumer Products—closed in the red. The top gainers included Adani Enterprise, Adani Ports & SEZ, Maruti Suzuki India, Eicher Motors, and Axis Bank.

Read here: Market Close Highlights: Sensex, Nifty close at record highs

Apart from the Healthcare and Pharma indices, which fell by 0.79% and 0.52% respectively, all other sectoral indices closed in the green. The Bank and Auto indices rallied more than 2%, while Financial Services, IT, Realty, Consumer Durables, and Oil & Gas indices climbed over 1%. The FMCG, Media, and Metal indices also closed positively.

What should investors do now?

With Nifty already crossing 22,900 today, some experts believe favorable election outcomes with positive macros can lead to Nifty hitting the 24,000 mark.

Santosh Meena, Head of Research at Swastika Investmart Ltd

In the current market scenario, Foreign Institutional Investors (FIIs) have been net short, but the market is experiencing a short-covering rally that appears to have further momentum. Despite continuous selling by FIIs in the cash market, there is now an anticipation that they may shift to buying, which would provide additional support to the market.

Looking ahead, the Nifty index may witness further expansion. An immediate target of 23,000 is in sight, with the possibility of reaching 24,000 as the election outcome approaches. However, while large-cap stocks are expected to perform well, mid-cap and small-cap stocks may underperform from this point forward.

Read here: Lok Sabha Election: Nifty may see a rally to 23,000, but can that last longer?

Ajit Mishra – SVP, Research, Religare Broking

The session turned out to be highly favorable for participants as the Nifty reclaimed its record high, gaining over one and a half percent. After a flat start, the Nifty steadily climbed throughout the day, inching closer to the significant 23,000 mark, primarily driven by substantial buying in select heavyweight stocks.

We anticipate the prevailing positive trend to continue, with the alignment of the banking index potentially adding further momentum. We are now targeting the 23,100-23,400 zone for the Nifty, with the 22,600-22,800 zone expected to provide support in case of any pullback. Investors should focus more on heavyweight stocks and remain selective in the mid-cap and small-cap segments.

Vinit Bolinjkar, Head of Research, Ventura Securities

The market remains buoyant as election-related uncertainties dissipate. Anticipation of political stability following the Lok Sabha elections has investors concentrating on quality stock acquisitions, given the favorable medium-to long-term market outlook.

Investor sentiment has further strengthened following the Reserve Bank of India's announcement of a record ₹2.11 lakh crore dividend to the Centre for FY24, positively impacting the economy by aiding the government in achieving its fiscal deficit target for FY25. Despite a sell-off by foreign institutional investors this month, domestic institutional investors have demonstrated robust buying activity. Data reveals that DIIs acquired Indian stocks worth ₹38,331 crore in the cash segment up to May 22, while FIIs divested ₹38,186 crore in the same period.

Read here: Jio Financial to seek shareholder nod for foreign investments via equity

Hitesh Jain, Strategist, YES Securities India Ltd

Buoyancy in Indian equities is based on the expectation of policy continuity and the Modi 3 regime, which is being front-loaded in many stocks. Supply of bigger IPOs has also contributed significantly to the market cap.

Markets have rallied broadly during this journey. Midcaps and smallcaps relatively have performed better. We don’t see a challenge in valuation terms as PE multiple for mid-cap and small-cap stocks are near the 5-year average. Earnings have improved broad-based as the number of companies reporting loss has shrunk drastically.

Technical view

Soni Patnaik, Assistant Vice President, Equity Derivatives Research, JM Financial Services

A 1,000-point rally from 21,800 levels as shorts get squeezed out of the system as FIIs positioning in long:short ratio bounces from 26% longs. Nifty futures witnessed 2.5% fresh longs on an intraday basis today till now. Nifty manages to cross crucial resistance of 22,800+ levels at the back of weekly expiry today and can head towards the 23,000 mark by the month-end expiry from current levels. Aggressive put options writing can be seen from the base of 22,500 PE to all the way till 22,800 PE forming a strong support base at 22,600/22,700 levels now.

Bank Nifty, on the other hand, sees unwinding as FIIs sold approximately ₹1,279 crore yesterday, thereby, slightly underperforming. Crucial resistance for Bank Nifty continues to be at its previous ATH of 49,000+ levels beyond which Bank Nifty can see levels of 49,500+ levels.

Read here: Adani Enterprises likely to replace Wipro on BSE Sensex

Gaurav Bissa, VP, InCred Equities

The Nifty index has made a fresh swing high and witnessed a fresh breakout on daily charts. RSI is trading above 60 which is likely to keep the momentum intact. A close above 22,800 will pave the way for 23,500 levels.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.