Sensex jumps 383 points, Nifty closes above 23,950 as benchmark indices scale 2-month highs. What lies ahead?

The Indian stock market extended sharp gains on Wednesday, with Sensex and Nifty rising to the highest levels in more than two months amid a sharp rally this week. Investors are now closely eyeing the outcome of the US midterm elections.

Sensex jumped over 350 points to cross the 77,300 mark for the first time since late August, closing at 77,301. Nifty 50 meanwhile rose 150 points to close at 23,961, crossing the crucial 23,900 mark for the first time in two months.

Bharat Electronics (BEL) shares jumped around 5% while Titan shares surged over 4% to lead gains on Sensex. IndiGo, Bajaj Finance, ITC, Adani Ports and Bajaj Finserv shares gained more than 2%. Bucking the trend, TCS, CHL Tech and Infosys shares fell 2-3% to lead losses on the benchmark index.

Among the sectors, Nifty Realty and Nifty Metal jumped nearly 3% each while Nifty Consumer Durables gained over 2% to emerge as the top winners. Bucking the trend, Nifty IT dropped 1.5%

Broader markets also extended gains, with Nifty Smallcap 250 and Nifty Midcap 100 indices jumping nearly 2% each. The overall market breadth continued to remain positive, with NSE seeing 884 declines against 2,720 advances, while 100 stocks remained unchanged.

All eyes on US midterm elections outcome

Investors are now closely tracking the outcome of the US midterm elections, as voting closed on Tuesday. Democrats have secured an early victory in their bid to regain control of the Senate after two years of President Donald Trump's administration. Early results began to offer an indication of the midterm outcome, with the campaign shaped by voter concerns over the rising cost of living and higher fuel prices following the US-Israel war against Iran.

Early trends are also hinting at a Democrat win in the House of Representatives. This would mean Democrats’ control over the entire Congress, marking a major setback for US President Donald Trump’s Republican party.

For India, the implications are likely to be more geopolitical than directly market-related, according to Emkay Research. It noted that Democratic control of Congress may increase scrutiny of tariffs and immigration but is unlikely to materially change these frictions. A likely re-escalation of the Iran conflict after the midterms will continue to weigh on India’s balance of payments, foreign exchange, and markets, it said.

ICICI Global Markets, however, does not expect a Democrat sweep in the midterm elections to alter the course of the Middle East war, as the previous attempts by Congress to end the war were unsuccessful. “A split Congress, however, may increase the chances of a government shutdown as different policy priorities of Democrats and Republicans lead to a gridlock on budget and spending. Shutdowns significantly lower growth rates in the affected quarter, depending on their extent and length,” it noted.

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What lies ahead for Dalal Street?

There is a distinct change in the market mood now, and this has changed the market construct, too, said V K Vijayakumar, Chief Investment Strategist, Geojit Investments. He noted that the principal factor that has changed the market mood is the sudden reversal of the FII stance towards India. The sustained selling by FIIs have been weighing on the market for the last two years. This is changing now. In five out of the last six trading days, FIIs have been buyers in the market, buying stocks for Rs 18,661 crore, the analyst pointed out.

“Importantly, the buying volume is increasing. Good corporate earnings and the attractive valuations in large-caps is providing the fundamental support to the rally. Weakening of the AI trade also has facilitated the return of the FIIs,” he said.

Even though the market revival can have a widespread character, this rally is likely to be led by the large-caps which have the potential to attract big FII flows, according to Vijayakumar. “The rally can be strong and can sustain since there will be short covering in many large-caps. Leading financials have more room to move up.”

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Technical view on Nifty

The nearest peak for Nifty is 24,378, seen during August. However, the index having moved closer to the upper band of 23,500-23,800, which was the target range pencilled in on Monday, Anand James, Chief Market Strategist at Geojit Investments, prefers to go in today with expectations of volatility.

“While we retain a fair possibility of seeing 23,990, within this construct, slippage past 23,700 will be taken as a weakening signal,” he warned.

Disclaimer: This article has been written by Debaroti Adhikary, who is not a SEBI-registered Research Analyst or an Investment Adviser. Debaroti Adhikary and his/her ‘relative(s)’ (as defined under Section 2(77) of the Companies Act, 2013) do not hold any financial interest in the companies mentioned in this article as of the date of publication. The views/recommendations mentioned in this article, wherever applicable, are those of the respective SEBI-registered Research Analyst/brokerage and have been reproduced/reported with due attribution. They should not be construed as the views or recommendations of The Economic Times Digital or the journalist. Readers are advised to consider the original research report and make their investment decisions based on their own assessment. Brokerage disclaimers here.