The benchmark Sensex has experienced a remarkable surge, gaining more than 5,000 points since the announcement of the Lok Sabha election results on June 4. This significant rally has seen the 30-share index rise nearly 5% in June, continuing its upward trend.
As of 3:15 pm on Thursday, the Sensex extended its rally for the sixth consecutive day, trading at 77,475.08, up 137.48 points (0.18%). This bullish momentum is driven by improved investor sentiment fueled by expectations of political stability, policy continuity, solid economic growth, a healthy monsoon, and easing inflation.
The market's volatility around the election results day was marked by a sharp selloff by foreign institutional investors (FIIs). Data from NSDL indicates that FPIs sold Indian equities worth ?25,586 crore in May, while simultaneously investing in Indian debt and debt-VRR instruments. This resulted in a net outflow of ?12,911 crore last month.
However, the trend has reversed in June. FPIs have invested approximately ?12,873 crore in the stock market so far this month, reflecting a positive outlook for the economy.
Market attention is now shifting to the upcoming Budget and policy decisions. While short-term volatility is anticipated, experts maintain a positive outlook for the equity market in the medium to long term. This optimism is supported by easing inflation, an above-normal monsoon forecast, and prospects of a rate cut cycle beginning by the end of the year.
Despite the bullish trend, concerns over the premium valuation of the market persist. The Sensex is now at a record-high level, with the index's price-to-earnings ratio (PE) at 23.5, slightly below its one-year average PE of 24. The mid and small-cap segments have also seen substantial gains, with the BSE Smallcap index up 10% and the BSE Midcap index up over 7% in June so far. Analysts warn of potential overvaluation in these segments.
Much will depend on the upcoming Union Budget, where the government is expected to focus on fiscal consolidation and capital expenditure on infrastructure, construction, and manufacturing schemes. These initiatives are anticipated to boost the economy and generate employment.
