Investors’ wealth rose by Rs 1.46 lakh cr on May 17; 3 factors that fuelled the rally

It was a blockbuster day for Indian markets as Sensex reclaimed Mount 38K while the Nifty50 witnessed a breakout above 11,300 levels to reclaim 11,400 levels on Friday largely buoyed by short coverings.

Investors’ wealth in terms of market capitalisation on the BSE rose by 1.4 lakh crore in a single session. The average market capitalisation of the BSE listed companies rose to Rs 146.59 lakh crore on May 17 compared to Rs 145.22 lakh crore recorded on Wednesday on the BSE.

“Despite global volatility, the domestic market extended the surge due to continued accumulation in blue chips by domestic investors and short covering ahead of an exit poll on Sunday,” Vinod Nair, Head of Research, Geojit Financial Services Ltd told Moneycontrol.

“Auto and FMCG outperformed in expectation of ease in the interest rate from RBI and prospects of near-normal monsoon. Having said that, investors remain focused on final election results for short term direction in the market,” he said.

The final tally on D-Street – the S&P BSE Sensex rose 537 points to 37,930 while the Nifty50 rallied 150 points to close at 11,407.

In terms of sectors, the S&P BSE Auto index rallied 2.4 percent, followed by the S&P BSE FMCG index which was up 2.3 percent, and the S&P BSE Finance and Banking index rose over 2 percent each.

The S&P BSE Midcap index rose 1.08 percent while the S&P BSE Smallcap index rose by 0.51 percent compared to 1.4 percent rally seen in the S&P BSE Sensex.

Here is a list of top 3 factors which could be fuelling the rally on D-Street:

Exit Polls:

After consolidating for the most part of the week, the index bounced back on Friday, just ahead of Exit Poll results which are scheduled to come out on Sunday, May 19.

The polling will end on May 19, 2019, after which Nifty can witness incremental volatility as Exit Polls start to come out. It looks like the Street is factoring in a stable government at the Center despite muted global cues.

“Markets have priced in the formation of a stable government with no party crossing the halfway mark on its own. We believe that the probability of this event is high,” Rajiv Singh, CEO, Karvy Stock Broking.

“In such a scenario, though some profit booking is likely, equity markets should do well over the course of the year and Nifty should end the year in the range of 13,000-15,000,” he said.

Jagannadham Thunuguntla, Sr. VP and Head of Research (Wealth), Centrum Broking Limited told Moneycontrol that Indian market has shown tremendous strength one day before the long-awaited exit polls, despite the ongoing ambiguity in US-China trade talks.

“With the last phase of elections scheduled for Sunday, the all-round buying across the sectors reflects market’s anticipation that exit polls may indicate the formation of a stable government,” he said.

Bajaj Finance, Bajaj Finserv & Bajaj Auto:

Corporate results from Bajaj Finance and Bajaj Finserv lifted investor sentiment. Bajaj Finance rose over 6 percent to a record high of Rs 3,314.95 following a 50 percent surge in net profit while Bajaj Finserv also hit its highest ever at Rs 8,024.80 after its profit grew by 32 percent in the March quarter.

Most brokerage firms maintained their rating on Bajaj Finance after the March quarter results but they raised their respective target price to Rs 3,600 which translates into an upside of over 10 percent from current levels.

Reacting to the results, Jefferies maintained its buy rating on Bajaj Finance post Q4 results but raised its target price to Rs 3,600 from Rs 3,100 earlier.

The Q4 profit was ahead of Jefferies estimate due to stronger net interest margins (NIMs). The asset quality was relatively stable, and strong growth seen in new customers is a positive sign.

Bajaj Auto rose over 3% and was among the top Nifty gainer after the two-wheeler maker reported a 20 percent jump in its fourth quarter standalone net profit (Q4FY19) at Rs 1,305.6 crore on the back of one-time gain of Rs 342 crore on the reversal of duty paid from 2007-2014.

After consolidating in a narrow range of 200 points in the week, the Nifty50 broke out of the range as it reclaimed 11400 in trade today which has opened room for further upside towards 11500-11550 levels.

India VIX fell down by 1.01 percent at 28.07 levels. However, the VIX is still trending at a multi-year high and a high VIX suggests that volatile swings could continue in the market ahead of Election polls and outcome.

On the options front maximum Put OI is placed at 11000 followed by 11500 strikes while maximum Call OI is placed at 12000 followed by 12500 strikes.

Call writing is seen at 11800 followed by 11400 strikes while Put writing is seen at 11000 strikes. Options band signifies a wider trading range in between 11000 to 11550 zones.

“The Nifty50 registered a strong bullish candle as it almost opened above its short term resistance points which also resulted in Hammer kind of formation on the weekly charts. In normal conditions this kind of strength shall eventually lead the index towards 11480 – 11,570 kind of levels,” Mazhar Mohammad, Chief Strategist – Technical Research & Trading Advisory, told Moneycontrol.

Mohammad further added that the market shall remain unpredictable for the next couple of sessions. “Nevertheless the positive outcome can extend the strength towards 11550 whereas any negative outcome may erase all the gains of 17th May by dragging down the index below 11250 levels,” he added.

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