Election Grand Finale: 5 Reasons, Why Sensex Rallied 2,778 Pts, Nifty Gained 808 Pts On June 3? EXPLAINED!

Frenzy buying in the Indian stock market led benchmarks Sensex and Nifty 50 to hit a new lifetime high. The already expensive Indian market just got more expensive compared to its peers in Western and Asian countries. On Monday, in an overwhelming buying, all sectoral indices surged by 1% to 8%. PSUs, banking, metals, oil and gas, autos, financials, FMCG, you name it, all are on a bullish trend.

In less than an hour of the opening bell of Monday, Sensex skyrocketed by 2,777.58 points or 3.76%, while Nifty 50 surged by 808 points or 3.6%. Banking stocks led the rally with Bank Nifty gaining by 2,307.65 points or 4.74%, outperforming both Sensex and Nifty.

That being said, the Sensex touched a new lifetime high of 76,738.89, the Nifty 50 clocked its own record high of 23,338.70, and Bank Nifty surpassed the tune of bulls Piper and hit a new high of 50,990.

Stocks like Power Grid, NTPC, SBI, L&T, Ultratech Cement, M&M, Axis Bank, and IndusInd Bank are top gainers with upside of 4% to 11%. All 30 stocks are in green on Sensex, except Eicher Motors, HDFC Life, LTIMindtree and Asian Paint were in red among Nifty 50.

BSE-listed companies' market cap is at Rs 4,24,57,726.42 crore. Of the total of 3,831 stocks on BSE, about 2,677 stocks advanced, 993 stocks declined, and lastly 169 stocks were unchanged. Further, a total of 244 stocks touched new 52-week highs.

On the market performance, Dr V K Vijayakumar, Chief Investment Strategist, Geojit Financial Services said, "Fundamentals, technicals and sentiments turning favourable at the same time are rare in the market. This is what has happened now. The market went into the big event, elections, very light with Nifty correcting around 600 points from the May highs. Profit booking also happened on a large scale. The short position in the market also is high."

"All these are going to change dramatically," he said.

Why did the Indian stock market rally to a record high on June 3?

Drum roll! The main reason is the expectation of a big BJP win in the polls of Lok Sabha Election 2024. Also, resilient economic growth coupled with RBI's upcoming policy outcomes have played a key role in influencing the stock market. Apart from this, broad-based buying across indices made a big contribution. Heavyweights like Reliance, HDFC Bank, TCS, SBI, and Bajaj twins further lifted the overall stocks.

Here are 5 key reasons why the stock market rallied on June 3:

1: Strong Economic Growth:

Indian economy continued to show resilient performance, outperforming other global countries. India's GDP growth rate came in at 7.8% in Q4FY24, while for the full fiscal year 2023-24, the growth was at 8.2%. The growth has been far better than RBI's estimate of 7% GDP in FY24.

On the economy, Manish Chowdhury, Head of Research, StoxBox said, "The Indian economy grew more-than-expected by 7.8% annually in the fourth quarter of FY24, much ahead of market expectations of a 6.7% growth. The growth momentum in the economy which grew 8.2% in FY24 can be attributed to the strong performance of the manufacturing and mining sectors due to the quality of capex spending in targeted areas and sustained domestic demand. With various high-frequency indicators indicating the sustenance of this growth in the current quarter as well, we believe that the initial groundwork is laid for beating market estimates and an upward revision to forecasts as we move ahead. We are of the view that the CAPEX spending, which has moderated due to elections, would pick up steam in future, thereby providing further fillip to the growth momentum."

Also, Vikaykumar said, "The GDP numbers which came on Friday were better than expected with 8.2% growth. This will provide fundamental support to the market. S&P's upward revision of India's rating outlook also is positive."

2. Election Poll Results:

As per Kotak Institutional Equities, Exit polls for the 2024 Lok Sabha elections suggest a comfortable majority for the BJP-led NDA, led by gains in East and South India and continued dominance in its traditional strongholds. We expect (1) the equity market to be further energized by the polls (although the numbers are similar to pre-poll surveys) and (2) the government to continue with its economic agenda.

On NDA, the brokerage highlighted Exit polls for the 2024 Lok Sabha elections are predicting a comfortable victory for the BJP-led NDA (see Exhibit 1). The exit polls' forecasts are broadly in line with the pre-poll surveys 1-2 months before the elections. Based on the exit polls, the NDA is likely to gain seats in South India, Odisha and West Bengal, lose a few seats in Bihar, Maharashtra and Karnataka and retain seats in its traditional strongholds.

Accordingly, Kotak's note added, that the results of the exit polls should not be a major surprise for the market. Kotak noted that (1) stocks with large leverage to the government's economic agenda (investment, PSUs) have delivered spectacular returns in the past 1, 3, 6 and 12 months and (2) the Indian equity market has seen a modest increase in volatility in the past one month, but India's VIX is still lower than those seen during previous elections, suggesting less uncertainty regarding the election outcome among market participants.

3. Investment-Led Growth Key Positive:

Moreover, Kotak expects the 'new' government to (1) continue with its economic agenda of development, growth and liberalization and (2) focus on investment-led growth, with the recent large transfer of the RBI surplus enabling it to increase capex versus the interim budget.

Kotak believes that the government will continue its focus on key areas such as (1) affordable healthcare and housing, (2) energy transition, (3) infrastructure development (defence, railways and roads) and (4) manufacturing.

It further said, "We note that the government has already executed the bulk of the required reforms for incentivizing private investments. In 2019, the BJP's 100-day economic agenda focused on boosting investments."

4. DIIs Overshadowing FIIs Selling:

In May 2024, FIIs made their biggest selling of 2024 to the tune of Rs 42,214.28 crore in Indian equities. This is higher compared to Rs 35,692.19 crore outflow in April, Rs 15,962.72 crore outflow in February and Rs 35,977.81 crore outflow in January. In 5 months of 2024, FIIs have only been net buyers in March 2024 to Rs 3,314.47 crore due to the financial year FY24 end.

The pain of outflows from FIIs is offset by five consecutive monthly buying by domestic investors. Unlike FIIs, DIIs invested Rs 55,733.04 crore in May 2024 in Indian equities, followed by Rs 44.186.28 crore inflow in April 2024. The biggest buying was seen in March to the tune of Rs 56,311.60 crore. In January and February, DII inflow stood at Rs 26,743.59 crore and Rs 25,379.30 crore respectively.

So far in 2024, DIIs have already neared their record inflows. YTD, domestic investors pumped in Rs 208,353.81 crore, which is nearing the record inflow of Rs 276,698.72 crore that was witnessed in 2022 when FIIs carried record selloffs.

YTD, FIIs have sold Rs 126,532.53 crore worth of equities. FIIs have been net sellers since 2021 in Indian stocks. The outflow was broadly less in 2023 at Rs 16,510.59 crore, compared to a record selloff of Rs 278,429.52 crore in 2022.

Vijayakumar said, "DIIs, HNIs, retail ...are all going to turn buyers. Short-covering can add to the momentum. The rally is likely to be led by large caps. Stocks like RIL, ICICI Bank, HDFC Bank, Kotak Bank, Axis Bank, Bajaj Finance, Bharti Airtel, L & T, M&M, Tata Motors, Bajaj Auto, Eicher Motors are fundamentally strong large-caps with the potential to lead the rally. IT stocks like TCS, Infy, HCL Tech, Coforge, Persistent and L&T Tech offer contrarian buying opportunities."

5. RBI June Policy:

Six-member MPC is scheduled to meet for the second bi-monthly monetary policy of FY25 from June 5th to 7th. The outcomes will be announced on Friday. The policy repo rate continues to be at a multi-year high of 6.50%.

Experts believe that RBI is unlikely to make changes to both - the policy rate as well as the stance of the policy in June. However, rate-cut scenarios ranging from 25 bps to 75 bps are expected in the second half of 2024.