The market achieved a new high on Friday after the Reserve Bank of India (RBI) decided to hold interest rates constant and maintain its stance in the December monetary policy meeting for the fifth time in a row. On Friday, the Sensex reached a new high of 69,893.8, while the Nifty 50 reached an all-time high of 21,006.10, breaking above the 21,000 barrier for the first time. The Nifty needed 61 sessions to reach 21,000 after breaking 20,000 on September 11 of this year.
The Nifty 50 concluded the day up 68 points, or 0.33%, at 20,969.40, while the Sensex completed the day up 304 points, or 0.44%, at 69,825.60. During the day, the BSE Mid-cap and Small-cap indices also reached new all-time highs, climbing to 35,523.69 and 41,548.63, respectively. The BSE Mid-cap index, on the other hand, finished the day at 35,290.91, down 0.16%. According to trendlyne data, the Sensex gained 3.47% this week, while the Nifty 50 gained 3.46%.
Since Friday, December 1, the Nifty 50 has set new highs in five of the six trading sessions. Several factors influenced the market this week, including the RBI's unanimous decision to continue the policy stance of "withdrawal of Accommodation" and keep the repo rate constant at 6.5%. Furthermore, the RBI raised its real GDP growth forecast for FY24 from 6.5% to 7%.
Furthermore, excellent GDP data—such as India's 7.6% Q2 GDP growth, which greatly outperformed forecasts—and exit polls from the five state elections, which signal political stability ahead of the general election in 2024, were some of the other main drivers boosting the market.
The upcoming data-heavy week will focus on key releases such as US and Indian inflation estimates. While inflation in the United States is expected to remain stable, inflation in India is expected to rise. While growth is expected, Indian industrial and manufacturing production is also expected. However, the outcome of the much anticipated Fed policy meeting will be critical in determining how the market shapes up further, even if the Street expects the tightening cycle to conclude.
"The market reached an all-time high, fueled by strong domestic GDP growth." Despite the RBI's policy stance remaining unchanged, an increased GDP growth prediction for FY24 (6.5% to 7%) boosted investor confidence. Financials benefited from measures to resolve the liquidity shortage, including the reversal of SDF and MDF facilities, resulting in a 5% increase in Nifty Bank for the week. Because of valuation comfort, festive momentum, and a high increase in residential sales, the IT, consumer, car, and real estate sectors did strongly. Mid and small caps continued to outperform, owing to a positive economic outlook, robust Q2 results, and oil price adjustments.
Investors should keep in mind that the RBI's 4% CPI inflation objective may take some time to achieve. Reduced rabi sowing and dwindling reservoir levels raise concerns about a possible increase in foodgrain prices. This had a negative impact on FMCG companies, despite favourable performance in most other sectors," said Vinod Nair, Head of Research at Geojit Financial Services.
The spectacular Rally in Mid-cap Stocks Continues
According to analysts, this year has been particularly focused on the larger market and has seen a lot of participation in it. This year, the mid-cap and small-cap indices have outperformed the benchmark indices. According to trendlyne statistics, the BSE Mid-cap gained by 2.04% this week.
According to trendlyne data, the top 10 gainers in the BSE Mid-Cap indices this week were Patanjali Foods Ltd (up 16.3%), Indian Overseas Bank Ltd (up 7.7%), ACC Ltd (up 12.5%), NHPC Ltd (up 12.1%), Hindustan Petroleum Corporation Ltd (HPCL) (up 9.3%), Tube Investments of India Ltd (up 8.6%), REC Ltd (up 8.4%), LIC Housing Finance Ltd (up 8%), Indian Overs
Steel Authority of India (SAIL) Ltd, Power Finance Corporation Ltd, IDBI Bank Ltd, MRF Ltd, Schaeffler India Ltd, ICICI Securities Ltd, Bank of India Ltd, JSW Energy Ltd, Indian Bank Ltd, Indian Railway Catering & Tourism Corporation Ltd, Canara Bank Ltd, and Container Corporation of India Ltd all gained 5% to 7.4% this week, according to trendlyne data.
Brokerage Point of View
According to Nuvama Institutional Equities' most recent report on Small and Mid-cap Strategy, mid-cap indices have grown by 47% since March 23, outperforming the Nifty 50 by 27%. It predicts that, despite their higher price, mid-caps should do slightly better than small-caps.
Although mid-cap companies are more costly than small companies (20x P/E on average over the last seven years), the brokerage observes that mid-cap companies in India have expanded in size and profile over the last five years. It's also unsettling that there's a 28% mid-cap premium to NIFTY value (compared to the average 7-8%). The brokerage feels that any additional outperformance vs large caps is quite unlikely. Mid-caps, on the other hand, are not projected to fare as poorly as small-caps during a market slump.
"We estimate that the mid-cap market cap definition will be USD2.8-8bn beginning in CY24 (applicable to domestic mutual fund mid-cap schemes)." This is a significant increase from USD1.2-3.5 billion just four years ago. Because of the higher market cap range, investors may perceive the first 50-75 mid-cap stocks as large-caps, and so mid-cap drawdowns will be less severe than in the past. Furthermore, mid-caps have a solid track record of becoming large-caps," the brokerage noted.
