Nifty reclaims 20,000, set for biggest monthly gain since July 2022

Benchmark indices rose more than one percent on Wednesday, amid continued optimism that the US Federal Reserve is done raising rates. A further decline in US bond yields and the dollar also fueled optimism that interest rates could fall faster than expected. The Nifty rose 207 points, or 1.04 percent, to 20,097, while the Sensex rose 723 points, or 1.1 percent, to 66,902.

The Nifty closed above 20,000 points for the first time since September 18. With the latest gains, the Nifty has extended its monthly gain to 5.33 percent and looks set to post its biggest monthly gain since July 2022, when it was up 8.7 percent. The Nifty is less than 96 points away from a new record high. On September 15, it recorded an all-time high closing record of 20,192.

“The drop in the US 10-year yield to below 4.3 percent and the drop in the dollar index to below 103 are positive for the stock markets. Foreign Portfolio Investors (FPIs) have also turned into buyers in response to the changed reality,” said VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services.

After rising to 5 percent in October, 10-year U.S. Treasury yields cooled this month after a decline in U.S. consumer inflation and dovish signals from U.S. Fed officials.

On Tuesday, Federal Reserve Governor Christopher Waller said he was increasingly confident that policies were now able to bring inflation under control. He also said the U.S. central bank could start cutting interest rates if inflation continues to decline over the next three to five months.

As US Treasury yields cooled, FPI flows have turned positive. In November so far, they have invested a net Rs 5,192 crore, after withdrawing Rs 24,548 crore in October and Rs 14,767 crore in September. Provisional data from stock exchanges estimated net investments by FIIs at Rs 72 crore on Wednesday. Domestic institutional investors (DIIs) bought shares worth Rs 2,361 crore in the previous session, the highest single-day purchase in November.

Foreign flows could get a boost when the rebalancing of the MSCI Emerging Market index takes effect on Thursday. India is expected to receive $1.5 billion in passive flows as nine new stocks are added to the MSCI EM index. Some of them are IndusInd Bank, Suzlon Energy and Paytm.

However, there may also be some volatility on Thursday ahead of the exit poll results for the state elections later this evening. “The markets could witness some nervousness on November 30, the day of derivatives expiration and ahead of the exit polls in the evening,” said Deepak Jasani, Head of Retail Research at HDFC Securities.

On Wednesday, 40 of the 50 Nifty constituents ended with gains, while 26 of the 30 Sensex stocks advanced. Axis Bank was the biggest gainer in both Nifty and Sensex, with a gain of 3.9 percent, followed by Mahindra & Mahindra (up 3.4 percent), Wipro (up 2.4 percent) and Tata Motors (2.1 percent increased).

The broader market index Nifty 500 rose 0.9 percent, the Nifty Midcap 100 index gained 0.8 percent and the Nifty Smallcap 100 index rose about one percent.