Why the Nifty rallied 1,400 points in over 25 trading sessions

The Indian markets may have been facing some difficult headwinds, but the markets have turned overly optimistic in the last 28 trading sessions. From a low of 16,828, the Nifty rallied to a high 18,267 during these 28 trading sessions. That is an 8.6% rally in the Nifty in a span of just about 28 trading sessions. Obviously, that is not just enthusiasm and there is a very strong logic to this rally. But more about that latter.

Data Source: NSE

How big was the Nifty rally?

There are two ways to look at the Nifty rally over the past 28 trading sessions. You can look at the rally on a closing basis, but a more appropriate method of looking at the rally would be to focus on the distance traversed from the low of this period to the high of this period.

• On a closing basis, the Nifty rallied from 16,988 levels to 18,256 levels during these 28 trading sessions. That is a rally of a full 1,268 points or 7.5% in the last 25 sessions. That is some serious optimism in the markets.
   

• Let us also look at the rally in terms of the distance from the low to the high during this period. The Nifty traversed from a low of 16,828 to a high of 18,267. That is a rally of 1,439 points or you can call it an 8.6% rally during this period.

In terms of the intensity of the rally, the latter gives a more granular picture. But, that brings us to the more important question of what exactly has triggered this rally.

How the Nifty rally got triggered?

March was a challenging month for the Indian markets. The markets were just about recovering from the Hindenburg report published about the Adani group towards the end of January 2023. The scathing report had led to the Adani group losing over $120 billion in market cap as investors rushed for the exits. Even as the markets were just about recovering from the shock of the Hindenburg report, there were a fresh set of shocks await. The US banking crisis began with the fall of Silicon Valley Bank and Signature Bank. More was to follow when Credit Suisse had to be hurriedly sold to UBS to avoid a bond market catastrophe. That led to the markets touching a low point in late March. But, what triggered the rally after that?

Read Adani Group Takes A Bad Break Due To Hindenburg Allegations

• The rally in India stocks got a big boost in early April when the RBI announced its bi-monthly monetary policy. With the Fed hiking rates by 25 bps despite the banking crisis, it was expected that the RBI would follow suit. However, the RBI decided to diverge and maintained status quo on rates at 6.5%. This may not have signalled the end of rate hikes, but it did signal that India may be close to the top on rates. That was a big morale booster for the stock markets and actually triggered the rally.
   

• FPIs turned net buyers in April, and this was genuine buying in an array of stocks. In March 2023 also the FPIs had infused $966 million. However, this was despite the $1.9 billion investment by GQG in the Adani group. That means; without the deal, the FPIs would still have been net sellers in March. However, in April 2023 there was no such ambivalence from the FPIs. There were relentless buyers on most of the days and infused $1.42 billion into Indian equities, despite it being a truncated month with just about 17 trading days. This FPI sentiment shift made a big difference to markets.

Read Sectors that FPIs bought and sold in April 2023

• Early Q4FY23 result signals were not as bad as expected. The markets were expecting the Q4 results to manifest pressure on the top line and the bottom line. However, most of the companies managed to make up in urban sales, what they were losing out on rural sales. Also, on the cost front, funding costs were still an issue but input inflation was abating and smarter inventory management did rest of the job. Overall, the Q4 results so far were better than expected, barring the exception of IT companies.
   

• The Indian rupee was stabilizing and even strengthening. It is currently at around 81.73/$ and while the pressure is still there, the rupee is able to hold even in the absence of RBI intervention. That means FPI and FDI investments in India are protected in dollar terms. One of the concerns was that if the dollar continued to rally then FPIs would have a tough time justifying investments in India. However, that was not the case. IPOs like Mankind Pharma saw a surfeit of FPI interest and that not only added to FPI flows but also gave a boost to the rupee.
   

• To be fair, there was adequate amount of short covering too, especially after the RBI decided to hold rates at 6.50%. Investors and traders, who were on the sell side, decided to cut short positions in a market that looked increasingly optimistic. Like in most rallies, the heavy short covering also played a big part in the rally.

The crux of the story is that the Nifty has rallied very sharply in a very short span of time. Can this rally sustain. Well, that would be grist for the mill for another story.