Sensex, Nifty50 At All-Time Highs: Factors that pushed indexes to record highs

The Sensex, India's premier stock market index, recently achieved a significant milestone by reaching an all-time high of 66,000 points on July 18, 2023, which was the fifth session of consecutive gains, showing an upward trajectory of the market.

The Sensex and the Nifty50 are India’s benchmark stock index which comprises the top 30 and top 50 companies respectively based on market capitalization. The index provides an overview of how top companies have performed and is an excellent barometer to judge the health of the economy.

Let's delve into the factors contributing to the Sensex's climb and its implications for the broader financial landscape.

Sensex at Record Highs: Historical performance

Why did the Sensex reach an all-time high?

The recent achievement of the Sensex reaching an all-time high of 66,000 can be attributed to several key factors like controlled inflation, robust corporate earnings, a weaker dollar, strong inflows from foreign institutional investors and easing interest rates. All factors together have positively influenced the Indian economy:

Sensex hits record highs: Calmer inflation pressures helped 

In June 2023, the consumer price index (CPI) inflation was 4.81% which was below RBI's upper tolerance limit of 6%. So, the controlled inflation rate of India when compared to other nations, has instilled confidence in investors and boosted market sentiment. 

For instance, in the US, the current inflation rate for the month ended June 2023 was 3%, which is still higher than the US central bank’s 2% target. 

Cooling inflation pressures generally translate to higher consumer spending and confidence. As more money is pushed in the hands of the consumer, investing activities and spending habits change. For instance, India’s CPI data was released on July 12, 2023 and the Sensex has gained about 2% since then till July 18, 2023. 

Here is a snapshot of India’s historical CPI rates: 

Sensex hits record highs: Strong FIIs inflows support

The strong inflow from FII (Foreign Institutional Investors) boosted Sensex. The month of June had FII inflows of Rs. 56257.70 crores, which was the highest in the year 2023. The total FII inflow for the year 2023 stood at 125072.55 crores. 

India’s equity markets are highly influenced by investments by foreign companies. Large fund houses like Blackrock, Vanguard and Fidelity invest in Indian stock indexes which have a direct linkage to how the market performs. 

Indian markets almost every time are directly linked to the quantum of FII flows. More inflows push the market higher while higher outflows negatively impact the market. 

Sensex hits record highs: Robust jump in consumer demand drives markets

Another significant factor behind the Sensex's surge is the increase in consumer demand within the Indian market. For example, the domestic sales of total passenger vehicles have increased from 30,69,523 to 38,90,114 units in FY-2022-23, compared to the previous year, according to data from SIAM.  

Furthermore, majority FMCG firms like Dabur and Adani Wilmar have commented on the steady rise in demand for its products due to lower costs. For more information on what FMCG corporates say on recent consumer demand, click here.  

Sensex at record highs: Weaker dollar supports 

The US Dollar Currency Index (which pegs the dollar to a basket of currencies) fell from 103.3 to 99.776 in between July 6, 2023 and July 18, 2023. The percentage decrease was 3.44%, this resulted in a strong inflow from FIIs.  

Any surge in the dollar or the dollar index is considered negative for Indian equities and vice versa. Weaker crude prices and a weaker dollar or any aspect that limits the outflow of the rupee helps the equity market. This stands true for the majority of emerging economies.  

Sensex at record highs: Pause in Interest rates hikes by RBI led rally? 

The Reserve Bank of India (RBI) June monetary policy meeting decided to keep the interest rates unchanged at 6.5%. This stability acts as a catalyst for the market to grow further.  

The central bank consistently hiked inflation in 2022 to control surging inflation. However, this incessant rise in rates negatively affected the stock market. The RBI has left interest rates unchanged since February 2023, at 6.5%. 

This is not investment advice. Investments in the securities market are subject to market risk, read all the related documents carefully before investing. Past performance is not indicative of future returns.