The key equity indices Sensex and Nifty extended gains on the second Monday of new year 2018 and rallied to record highs taking their respective annual returns to hold around 28-29%. The S&P BSE Sensex clocked as much as 221 points to hit a fresh all-time high of 34,374.85 while the wider 50-share index Nifty added 64.35 points to mark the record high of 10,623.2. Indian stock markets surged to record highs very quickly after opening on a higher note on Monday with the broad market indices of NSE such as Nifty Next 50, Nifty Midcap 50, Nifty Mid100 Free, Nifty Sml100 Free, Nifty 100, Nifty 200, Nifty 500 rising in a range of 0.4% to 1.5%. The sectoral indices of NSE too ticked up in today’s trade as ten out of eleven of them were trading in the green with Nifty IT, Nifty Media, Nifty Pharma and Nifty Realty leading the charge with gains up to 1.8% while Nifty PSU Bank index hovered in red. 

We take a look at 5 reasons which are fueling the stock market rally:

Wall Street at records

India’s stock market often take cues from the American markets. The stock markets of the United States made yet another record highs on Friday with the key indices such as S&P 500 and tech-heavy Nasdaq posting their best new year week gains over a period of more than a decade. With the New Year’s Day holiday falling on a Monday this year, it was the strongest first four trading days to a year in more than a decade for all three major indices. For the Dow Jones Industrial Average, it was the strongest start since 2003 and for the Nasdaq and S&P 500 it was the strongest since 2006, Reuters said in a report. The Dow Jones Industrial Average rose 220.74 points, or 0.88% to 25,295.87, the S&P 500 gained 19.16 points, or 0.7% to 2,743.15 and the Nasdaq Composite added 58.64 points, or 0.83% to 7,136.56.

Third-quarter earnings optimism

Investor’s sentiments across the street seemed to have turned optimistic ahead of the major corporate earnings for the October-December quarter of the financial year 2017-2018. Going ahead, the domestic markets are likely to be steered by upcoming quarterly results season, along with the release of macroeconomic data including industrial production and inflation. Also, the global cues such as crude oil prices, combined with the direction of foreign fund flows and the rupee’s movement against the US dollar, will also impact investors’ risk-taking appetite. This week, companies like Tata Consultancy Services, Infosys, Bajaj Corporation and IndusInd Bank are scheduled to release their respective Q3 earnings report card.

FII’s influx

The FIIs (foreign institutional investors) have again started injecting money into domestic equities after an extended sell-off between the months of August 2017 and December 2017. As per the data available at the exchanges, within a period of 5 trading days of New Year 2018, FIIs have bought equities worth around Rs 1,700 crore. During the tenure of August to December 2017, FII remain on a perpetual exit mode. FIIs sold around a net of Rs 67,500 crore worth of shares from August to December 2017.

Expectations of a populist Union Budget 2018

The expectations of a popuilist Union Budget 2018 seemed to have turned infused a wave of optimism among the investors. As India had entered into the poll-bound 2018, it is likely that the Narendra Modi government reforms spree will likely take a pause for populist measures. Before 2019 General Elections, assembly elections are due in eight states, of which, in two states, the BJP has the challenge to retain power for the fourth time. Only in Karnataka, the BJP will be fighting to win the state from the Congress. This would shift focus from new policies to elections, and in most probability populists measures. “In the run-up to the 2019 Lok Sabha elections, states including Rajasthan, Madhya Pradesh, Chhattisgarh and Karnataka are due for polls in 2018. Inevitably, it would be the popular voters’ sentiment that would be factored by the Centre and the state governments in their policies,” Assocham said. “Any tough reforms, like flexibilities in labour laws, may not go well with the popular sentiment and thus, India Inc’s expectations on this front should be muted,” Assocham added.

Value-buying in heavyweights

Following the above mentioned factors, a value-buying have been witnessed in the shares of heavyweight companies such as Infosys, L&T, HDFC, ITC, Reliance Industries, Coal India, Sun Pharma, TCS, IndusInd Bank, and ICICI Bank contributed the most in the Sensex bull run. Collectively these 10 stocks alone added about 210 points to the index while on the other hand, a slump of about 4.5% in shares of India’s largest telecom company washed away as much as 28 points.