Will the Indian stock market continue its upward momentum this week? Here’s what experts say

After experiencing significant volatility, the Indian benchmark indices resumed their upward momentum last week, with both the Nifty 50 and Sensex achieving their second-best weekly gains in 2024, led by favorable domestic and global factors.

The Nifty 50 closed the week with a gain of 2.03%, marking its most significant weekly increase since January 2024, while the Sensex also ended the week with a gain of 1.85%, its highest since January.

Several factors contributed to this upward movement. Firstly, there were expectations of a rate cut from the US Federal Reserve. Additionally, forecasts indicating an earlier start to the monsoon season with expectations of above-average rainfall boosted market sentiment.

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Furthermore, strong domestic buying, improved voter turnout in the fourth phase, and stability in crude oil prices also played significant roles in driving the market higher. Also, markets received a boost after US benchmark indices reached record highs.

Metal stocks, on the other hand, surged significantly following China’s announcement of a comprehensive stimulus package aimed at bolstering its distressed property market. The measures include the relaxation of mortgage regulations and encouragement for local governments to purchase unsold homes.

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In the latest trading session, the Nifty Metal index surged to a record high of 9,633 points, marking a significant milestone. The index closed with a notable gain of 7.03%, reflecting strong bullish momentum in the metal sector.

Strong DII’s support

Despite considerable FII selling, the market has demonstrated resilience, largely due to DIIs absorbing the majority of selling. Trendlyne data showed that out of the last 13 sessions, FIIs remained net sellers in 11, withdrawing Rs. 35,527 crore from the Indian stock market.

Conversely, DIIs countered this by purchasing nearly an equivalent amount, with ₹33,973 crore being invested during this period.

“The main trigger for the FII selling has been the outperformance of the Hong Kong index Hang Seng, which shot up by 19.33% during the last one month. FIIs are moving money from expensive markets like India to cheap markets like Hong Kong, where the PE is around 10 compared to around 20 PE in India,” said Dr V K Vijayakumar, Chief Investment Strategist, Geojit Financial Services.

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“Another important trend is the stability of FII inflows into debt. So far for CY2024, while the equity market has witnessed FPI outflows of ₹26,019 crore, the debt market has witnessed inflows of ₹45,086 crores. Going forward, there is likely to be a dramatic change in FPI equity flows in response to election results. Political stability will attract huge inflows,” he added.

Sunil Damania, Chief Investment Officer, MojoPMS, said, “There are two main reasons why foreign portfolio investors (FPIs) have been selling in FY2025. First, there’s uncertainty about the upcoming election. FPIs generally don’t like uncertainty; they prefer to play it safe and lock in the profits they made last year. Second, the market valuations are quite high.”

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“We anticipate the market remaining volatile after June 4th. Once the election concludes, all eyes will be on the July budget announcement, triggering more speculation and potential market swings. The high market valuations could act as a barrier to significant market gains, but there’s also a possibility of a downturn.”

“Despite the current short-term uncertainty, we maintain a positive outlook for the Indian equity market and project strong returns over the next three to five years,” added Sunil Damania.

Volatility to continue?

Looking ahead, analysts anticipate that the volatility in the Indian benchmarks will continue this week, commencing on Tuesday. The market will remain closed for the fifth phase of parliamentary election voting in Mumbai on Monday.

Investors will keep a close eye on various factors throughout the week, including the January-March quarter results, voter turnout in the fifth phase of elections (especially in the Mumbai region), macroeconomic data from both India and abroad, foreign fund withdrawals, fluctuations in crude oil prices, and global market cues.

These factors are poised to influence market sentiment and trading activity this week.

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“The coming week is a holiday-shortened one, and market focus will remain on earnings reports, ongoing elections, and global index performance for further cues,” Ajit Mishra, SVP, Research, Religare Broking, told ANI.

“Most key sectors participated in the uptrend, with realty, metal, and energy sectors leading the gains, while FMCG was the exception. Notably, the buoyancy in broader indices stood out, with the midcap index reaching a record high and gaining between 4.5% and 5.6%,” Mishra added.

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“The outlook for the market will be guided by the major domestic and global economic data, such as India’s PMI manufacturing and service data, UK inflation data, US initial jobless claims, S&P global services data, and S&P global manufacturing PMI and Q4 corporate results,” Arvinder Singh Nanda, Senior Vice President, Master Capital Services, told PTI.

Vinod Nair, Head of Research, Geojit Financial Services, said, “The release of PMI data for May from both the US and India next week will be closely monitored for further market insights. Amidst ongoing uncertainties surrounding election results and quarterly earnings, we anticipate continued volatility in the near term.”

Disclaimer: The views and recommendations given in this article are those of individual analysts. These do not represent the views of Mint. We advise investors to check with certified experts before making any investment decisions.