Sensex flirts with 39,000: Top 5 factors that are fuelling the rally on D-Street

Indian market created history on April 1 as Sensex surpassed its previous record high of 38,989 registered on August 29, 2018 to hit a new lifetime high of 39,028.

Nifty50 is just a few points away from its record high of 11,760.

Rally in Sensex was led by gains in stocks like ICICI Bank, Infosys, L&T, TCS, Tata Motors, Maruti and Vedanta.

Here is a list of top 5 factors which could be fuelling the rally:

Strong global cues:

Indian market started with a gap on the upside largely led by strong global cues. Wall Street closed the March quarter on a strong note and the S&P 500 posted its best quarterly gain since 2009, boosted by optimism over the latest round of trade talks between the United States and China.

The benchmark S&P 500 rose 13.1 percent in the quarter, its biggest quarterly gain since the third quarter of 2009 and its best first quarter since 1998, said a Reuters report.

For the quarter, the Dow gained 11.2 percent, its biggest quarterly rise since 2013, while the Nasdaq jumped 16.5 percent in its best quarter since 2012, it said.

Asian stocks rallied on positive Chinese factory data as well as there are signs of progress in Sino-US trade talks supported bullish sentiment. “MSCI’s broadest index of Asia-Pacific shares outside Japan added 1 percent and the Shanghai Composite Index rallied 1.7 percent,” said the report.

Financials lead the rally: Nifty Bank at record highs

One big sector which is leading the rally is Nifty Bank. The index hit a fresh record high of 30,646 in morning trade on Monday, led by gains in PNB, Bank of Baroda, ICICI Bank, SBI, and HDFC Bank.

Three stocks have hit fresh 52-week highs on the NSE which include names like IDFC First, ICICI Bank, and HDFC Bank.

The Bank Nifty has witnessed long rollovers for April series and the open interest hit a six-month high whereas rollover cost has increased to 140 points on the back of long positions being carried forward to the April series which pointed.

Strong long rollover suggested that the rally is likely to continue in April as well. Market participants are also factoring in a rate cut by the Reserve Bank of India (RBI) in the upcoming RBI policy meet.

“There was a surge in option premiums ahead of the RBI monetary policy meeting, which is lined up in the coming week. Looking at the huge OI open in 30000 and 29800 Put strikes, we feel the outperformance in the banking space should continue,” Amit Gupta, head of derivatives at ICICIdirect.

“In case of any profit booking, Put writers are likely to provide a cushion. We feel the index will remain above 30,000. The current price ratio of Bank Nifty/Nifty has moved above its two-year highs and made a new lifetime high,” he said.

Gupta is of the view that on the back of huge buying by FIIs in the cash segment, the outperformance trend in banking stocks is likely to continue. In the absence of any negative triggers from the policy, the Bank Nifty can test 30,800.

Liquidity-driven rally: FIIs turn net buyers

Fresh fund infusion was witnessed in the last two consecutive months of the fiscal, with March alone accounting for a net infusion of Rs 45,981 crore including a net Rs 33,980 crore in equities and Rs 12,001 crore in debt, PTI data showed. In February, the overseas players pumped in a net amount of Rs 11,182 crore in capital markets.

"Massive FIIs Inflows – nearly 5 billion dollars in March Series, stronger rupee and rise in the possibility of BJP coming back to power helped markets to do well in the March series. Bulls not only were in control, but bears have also been taken to cleaners," VK Sharma, Head PCG & Capital Markets Strategy, HDFC Securities told Moneycontrol.

Emerging Markets (EMs) witnessed mixed portfolio flows during the week. Equity flows of $230 million and $140 million were seen in India and Taiwan, respectively.

Stable government:

Hopes of a stable government at the center has fuelled a rally in broader markets and that is why we have seen outperformance when it comes to small & midcaps which were trading at attractive valuations after the recent correction.

“Opinion polls are predicting NDA/Modi winning 2019 upcoming General Elections, Opinion polls suggesting will get around 280 seats, This has already triggered a huge rally in the stock market,” Prakash Pandey, Head- Research, Fairwealth Securities told Moneycontrol.

Axis Securities in a note said that if we witness stable government post general elections and the current trend of foreign and domestic fund flows to continue in the markets, it would augur well for investors in India.

Technical Factors:

The Nifty50 surpassed 11600 last week and is trading around its crucial resistance level of 11700 levels. The index is just 50-60 points away from its previous record of 11,760 recorded on August 28, 2018.

Analysts advise investors not to take positional bets till the index trades below 11,760 while a close above 11800 levels could infuse short coverings rally.

"For the week, avoid taking fresh positional trade between 11700-11750. Options data is suggesting that the markets should remain between the range of 11570 and 11750 for next 2 to 3 days," Shrikant Chouhan, VP (Technical Research), Kotak Securities) told Moneycontrol.

"Let the market cross the hurdle of 11760 decisively, that would help us to re-enter the market. However, above 11800 levels there could be a massive round of short covering," he said.