Nifty touches new high above 18,900; ab 19,000 door nahi?

The Nifty touched a new high on Wednesday, June 29, 2023. There has been a lot of enthusiasm in the markets with all round buying in most of the Adani stocks and in Tata Motors. It has come a long way from the lows of March when the Hindenburg saga had taken the Nifty to below 17,000. That looks like a distant dream that is best forgotten now. First let us take a look at the Nifty in the month of June 2023.

Data Source: NSE

As can be seen in the above table; on the first of June 2023, the Nifty had touched a monthly low of 18,464.55. Around mid-day on June 28, 2023, the Nifty has touched 18,983.45, just a stone’s throw away from the 19,000 mark. But what is really interesting is how the Nifty broke out of the key resistances in the last couple of months.

Breaking through 18,400 and 18,800

These were the key levels that the Nifty had breach in the last two months. Firstly, it had a struggle breaching the 18,400 resistance mark. Once that was done, the 18,800 level provided to be the resistance. The Nifty did consolidate for some time in the range of 18,400 to 18,800 but has finally given a decisive break above that range. That is positive for the markets and can now take the Nifty to well above 19,000 if the present momentum sustains. For the Nifty this totally reverses the sell-off post 2021 when the technology stocks had heavily lost value and the IPO markets had become virtually inactive. The rally is back and much of it was driven by sectors like banks, autos and FMCG. But, what exactly were the factors driving the Nifty to a new high?

What triggered a new high on the Nifty?

It was a combination of global and domestic factors that took the Nifty to new highs. Here we enumerate some of the key factors taking the Nifty to new highs.

• At a macro level, the inflation came down sharply to 4.25% in May 2023 while the IIP bounced back. Even core sector growth has been robust and most of the high frequency indicators were also favourable. That is likely to keep the markets enthusiastic.
   
• The second factor was global and it had to do with a pause by the US Federal Reserve. However, this is likely to have limited impact for now because the language of the Fed is still hawkish. Also, the Bank of England is still very hawkish.
   
• Thirdly, the RBI has held rates flat for the last 2 policy announcements in April and June 2023. That has reduced the pressure on costs and on the interest coverage ratio. Low rates are also supportive of equity valuations, especially when markets are expecting that rates have already topped out in India.
   
• Normally, it is the recent triggers that actually boost the markets. In this case, the recent trigger came from the lower than expected current account deficit announced by the RBI for the March 2023 quarter. For March quarter, the CAD at $1.3 billion is just about 0.2% of GDP and even CAD for the full year at 2% is a big source of relief for the markets.
   
• Above all, there is the company specific bounce in the Adani stocks, which was the story that led the markets lower in March. The group has cut debt and put out more focused plans for the future. Above all, the HDFC Bank merger has been completed and likely to be effective from July 01, 2023. The impact and the passive flows will be huge.

To sum it up, the Nifty spike has been driven by a combination of domestic and global macros. For now, the going is really good for the markets. The rally in the Nifty could possibly take it higher; but we have to wait and watch!