Nifty scales Mount 20,000 on 11-Sep-2023

There was a sense of irony to the Nifty movement. Since the start of August 2023, the Nifty has been struggling to break above the 20,000 mark. It repeatedly made lower tops and lower bottoms; a classic bearish signal. However, the first few days of September 2023 have been extremely bullish. Ironically, the Nifty touched the 20,000 mark on 09/11. Over the years, this date has become famous or (say notorious) for one of the most cataclysmic days in modern history.

It was on this day, 22 years ago, that in one of the biggest acts of terror, the World Trade Centre (Twin Towers) were reduced to rubble. That was also the day when the Nifty and Sensex went into a tailspin and made a low, which has not been broken since. A lot has changed in 22 years. On that fateful day in 2001, the Sensex had touched a low of 2,550. Exactly 22 years later, the Sensex is at 67,128. But let us forget about the history and get back to the present.

Scaling Mount 20K on 11-Sep-2023

After a long struggle, the Nifty crossed the psychological mark of 20,000 on September 11, 2023. It comes in a month when FPIs have been net sellers in Indian equities after infusing $18.5 billion in the previous 4 months. The table below captures how rapidly the Nifty has moved in September 2023.

Data Source: NSE

One has to look at the two shaded squares in the table above. Between September 01, 2023 and September 11, 2023; the Nifty has traversed nearly 800 points and has managed to close on September 11, 2023; just about 4 points below the 20,000 mark. Let us look at 3 factors that triggered this rapid rise in the Nifty, in a rather unexpected manner.

1. Feel good factor post the G-20 Summit

There were a lot of doubts about the success of the G-20 Summit, especially considering that China and Russia were not attending the Summit. However, India not only put up a great show, but won accolades from most of the developed world for its leadership. Even the likes of Biden have strongly recommended that India be included in the UN Security Council as a permanent member, something China has persistently objected to. The G-20 Summit has opened the vistas for big business opportunities in technology, green energy and artificial intelligence as is evident in some of the big deals. Overall, the message may be more political than economic, but the statement is one of an emerging economic power.

2. Robust GDP numbers sets the tone

When the India GDP numbers were announced on the last trading day of August, it was much better than expectations at 7.8% in real terms. In addition, India had also announced nominal GDP growth of 8% and core sector growth for July also at 8%. It is quite evident that India is emerging as the fastest growing large economy and is increasingly filling the gaps left by China. One can argue that the GDP reported weak manufacturing and strong services, but that is the nature of the economy. Global demand has been tepid, so some weakness in manufacturing is par for the course.

3. Real story is about capex by India Inc

If you look at the real story of the spike in markets, it is about capex. For August 2023 the FPIs may have infused only $1.48 billion into Indian equities overall. However, they did infuse $2 billion into capital goods and power sector, a clear indication of where they see growth. Most investors are strongly betting on a revival of the capital investment cycle in India. Take some cases. L&T has just received a $4 billion order from Saudi Aramco. Maruti is sinking ₹50,000 crore into doubling capacity. Oil companies are pumping in ₹1 trillion each to boost their green energy franchise. Not to forget, with the latest Nvidia deal; Reliance and Tatas are likely to sink top dollars into artificial intelligence. This capex spending is a bet that is hard to miss.

The rally may be surprising amidst FPI selling, but there is a method in the madness. It is a big bet on capex transforming the growth trajectory of India. For now, it is time to raise a toast to a new Nifty high!