Indian stock market adds over $1 trillion to mcap in 6 months, Nifty 50 up 6% in June; What’s fueling the rally?

India—the fifth largest equity market in the world—has added more than $1 trillion to its market capitalisation (mcap) over the last six months with the domestic equity benchmarks Sensex and Nifty 50 reaching fresh record highs over robust macroeconomic indicators and bullish investor's sentiments.

The NSE benchmark Nifty 50 has hit record highs in eight out of 11 sessions. Nifty 50 has gained about six per cent in June so far, on course for its best month this year, helped by policy continuity after the Lok Sabha election results, forecasts for better economic growth and the return of foreign inflows.

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Additionally, Nifty 50 is headed for an unprecedented ninth-straight year of gains. The shares of smaller and mid-sized companies have also been rallying and outperformed their larger peers in recent years to account for about 40 per cent of the total market valuation, according to news agency Reuters.

How Indian markets compare with US, China

India's equity market has joined the ranks of the US, China, Japan and Hong Kong after topping the threshold. Since the beginning of 2024, the combined mcap of companies listed on Indian bourses surged by 24.5 per cent to $5.23 trillion. This compares with the $1.06 trillion erosion witnessed by the second-largest market—China—during the same period, according to Bloomberg.

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While the Japanese market remained almost flat in the last six months, the fourth-largest market, Hong Kong, added just $428 billion, according to the report. In absolute terms, the Indian market has never seen an increase of this magnitude except in 2007 when the mcap rose by $1 trillion to $1.81 trillion.

Stock market today

The domestic benchmark indices, Sensex and Nifty 50 closed in green on Wednesday's trading session led by heavyweights Reliance Industries Ltd, Bharti Airtel Ltd, UltraTech Cement Ltd, ICICI Bank. In the past three days of rally, investors' wealth have risen by ₹2.53 lakh crore.

The 30-share BSE Sensex ended higher by 620.73 points or 0.80 per cent at 78,674.25 level while the Nifty 50 closed at 23,868.80 level, up 147.50 points or 0.62 per cent. On the broader market front, the Nifty Midcap 100 closed 0.22 per cent lower, while the Nifty SmallCap 100 ended up 0.25 per cent. 

"The domestic market hit a new peak, bolstered by a rally in large-cap stocks, where the valuation is relatively fair. In contrast, mid- and small-cap stocks saw profit-taking due to valuation concerns,'' said Vinod Nair, Head of Research, Geojit Financial Services.

‘’Currently, the financials and consumption stocks are catching-up driven by improved balance sheets, a strong GDP growth forecast, and softening inflation. Global market sentiments reflected similar trends, with a consensus on imminent rate cuts,'' added Nair.
 

What's fuelling the rally in Indian markets?

1.Rally in heavyweights

According to Aishvarya Dadheech, founder and chief investment officer at Fident Asset Management, "Earnings-wise, large-cap conglomerates like Reliance, most of the public sector banks and large private banks are solid. Institutional money is chasing these segments.''

Oil-to-telecom conglomerate Reliance Industries, which has the second-highest weightage on the Nifty, rose 4.1 per cent to hit an all-time high. It has risen about two per cent this fiscal year, less than the Nifty's seven per cent increase.

‘’Reliance Industries shares rose in today’s trading session buoyed by the overall positive sentiment prevalent in markets, especially large cap stocks. Also, market hopes that a tariff hike in the telecom sector is around the corner boosted hopes of a strong performance from the company’s telecom business,'' said Parth Shah, Research Analyst, StoxBox.

‘’Our sense is that the recent buoyancy in shares is also supported by the return of FII buying in the domestic market. Apart from ticking all the right boxes on the fundamental side, we believe that investors are becoming increasingly confident of its new energy business and also expect strong performance from the retail business going ahead,'' added Shah.

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2.Return of foreign inflows

The sharp bounce back in Nifty by 7.5 per cent from the June 4 lows indicates that the undercurrent of this market is bullish. The sentiment has prompted buying by foreign investors but the exuberant retail investors are likely to buy every dip since the ‘buy on dip strategy’ has worked very well in this bull market.

A positive news from the market perspective is the current account turning surplus in Q4 FY24. This will take away the pressure on the rupee and pave the way for FII inflows when clarity emerges on the US Fed rate cuts.
 

3.Strong macro fundamentals

Analysts say that the overall optimism surrounding the Union Budget in July, increasing foreign inflows, and robust domestic economic data contributed towards the positive movement in the market. They expect the ongoing uptrend to continue further.

On Wednesday, cement stocks witnessed renewed buying interest, driven by expectation of higher government spending on road construction. The sentiment for banking and financial sectors have improved after lower current account deficit (CAD) numbers were released yesterday. 
 

Disclaimer: The views and recommendations provided in this analysis are those of individual analysts or broking companies, not Mint. We strongly advise investors to consult with certified experts before making any investment decisions, as market conditions can change rapidly and individual circumstances may vary.