Market Rebounds After Election Day Bloodbath; Sensex & Nifty Gain 1% At Open; Factors To Watch?

In a turnaround from the previous day's steep losses, the Indian stock market opened on a positive note this Wednesday. Despite mixed global cues, the market showed resilience, providing a sigh of relief to investors rattled by the Lok Sabha election results announced on June 4.

The benchmark indices displayed recovery, the Sensex surged by 670.21 points, or 0.93%, reaching 72,749.26, while the Nifty climbed by 209.00 points, or 0.96%, to settle at 22,093.50. The market breadth was encouraging with 1,714 shares advancing, 678 shares declining, and 95 shares remaining unchanged.

On the Nifty, prominent gainers included ONGC, Mahindra & Mahindra (M&M), Bharat Petroleum Corporation Limited (BPCL), Hindustan Unilever Limited (HUL), and Tata Steel. Conversely, Hindalco, Larsen & Toubro (L&T), Power Grid Corporation, Axis Bank, and Apollo Hospitals emerged as the top losers.

The significant decline in Hindalco's shares, down by 5%, was attributed to Novelis Inc.'s decision to postpone its initial public offering (IPO) due to unfavourable market conditions. This announcement led to a sell-off in Hindalco, as Novelis is a key subsidiary.

The BSE Capital Goods index took a substantial hit, shedding 3.5%, with notable declines in Schaeffler India, Suzlon Energy, and Bharat Electronics, each plunging by 5%.

The Indian Rupee opened marginally higher at 83.46 per US Dollar compared to the previous close of 83.52, signalling a slight improvement in investor confidence.

Aditya Gaggar, Director of Progressive Shares, commented on the market dynamics: "Yesterday's hammering caused the biggest drop in the Indian markets since March 2020, with Nifty50 ending the session at 21,885. The Index has formed a massive red candle on the daily chart, indicating extreme pessimism. However, today's moderate opening aligns with the GIFT Nifty indication, suggesting immediate support at 21,600 and a strong hurdle at 22,500. The short-term trend across sectors has turned bearish, but this correction presents an opportunity for long-term investors to deploy 5-10% of their capital."

The massive sell-off on June 4, a reaction to the Lok Sabha election results, was driven by the ruling Bharatiya Janata Party (BJP) failing to secure a clear majority, contrary to exit poll predictions. Despite this, the BJP-led National Democratic Alliance (NDA) managed a slim majority, enabling Prime Minister Narendra Modi to return for a historic third consecutive term. The NDA won approximately 295 seats, just above the 272 needed to form the government.

Investors were spooked as the results fell short of expectations, causing the Sensex to plummet by 4,389.73 points, or 5.74%, to close at 72,079.05. Similarly, the Nifty 50 tumbled by 1,379.40 points, or 5.93%, ending at 21,884.50. The outcome has introduced a degree of political uncertainty, making investors wary about the policy direction and economic reforms in the coming term.

Global Market Influence

Asian markets exhibited mixed trends, with Japan's Nikkei 225 and Topix indices declining by 1.14% and 1.4%, respectively. In contrast, South Korea's Kospi gained 0.63%, and the Kosdaq rose by 0.21%. Hong Kong's Hang Seng index futures indicated a weaker opening.

In the United States, stock markets closed higher, bolstered by weaker-than-expected job openings data, which fueled hopes of an interest rate cut by the Federal Reserve. The Dow Jones Industrial Average rose by 140.26 points, or 0.36%, to 38,711.29, the S&P 500 edged up by 7.94 points, or 0.15%, to 5,291.34, and the Nasdaq Composite increased by 28.38 points, or 0.17%, to 16,857.05.

Prominent tech stocks like Amazon, Alphabet, Nvidia, and Microsoft saw gains, whereas Exxon Mobil and Chevron experienced declines. Bath & Body Works witnessed a steep fall of 12.8%, and Axos Financial and Paramount Global also faced declines.

Foreign Investment Trends

On Tuesday, Foreign Institutional Investors (FIIs) net sold Indian shares worth Rs 12,436.22 crore, while Domestic Institutional Investors (DIIs) net sold shares amounting to Rs 3,318.98 crore, reflecting the intense selling pressure following the election results.

Crude Oil Prices

Crude oil prices extended their losing streak for the sixth consecutive session amid rising US crude and fuel stockpiles. Brent crude futures dipped by 0.14% to $77.41 a barrel, while US West Texas Intermediate crude futures declined by 0.23% to $73.08 a barrel.

Despite the recent volatility and political uncertainties, today's rebound offers a glimmer of hope for the Indian stock market. Investors are cautiously optimistic, looking for stability as the new government prepares to take charge. The interplay of global cues, foreign investment trends, and domestic political developments will continue to shape the market's trajectory in the coming days.