Sensex jumps 400 points, Nifty above 23,900 as investors eye US midterm poll outcome. What lies ahead?

The Indian stock market extended sharp gains on Wednesday, with Sensex and Nifty soaring to two-month highs amid a sharp rally this week. Investors are now closely eyeing the outcome of the US midterm elections.

Sensex jumped more than 400 points to cross 77,300 mark for the first time since late August. Nifty 50 meanwhile rose 120 points to cross 23,930, crossing the crucial 23,900 mark for the first time in two months.

Bajaj Finserv shares jumped around 4% to lead gains on Sensex. ITC, BEL, Adani Ports, Bajaj Finance, HDFC Bank and Titan shares gained 2-3% to follow. Bucking the trend, Eternal and Power Grid shares dropped more than 1% each to lead losses on the benchmark index.


Among the sectors, Nifty Realty jumped 2% while Nifty FMCG and Nifty Consumer Durables indices gained over 1% each. Bucking the trend, Nifty IT slipped into the red.

Broader markets also extended gains, with Nifty Smallcap 250 and Nifty Midcap 100 indices jumping up to 0.75%. The overall market breadth however turned negative, with NSE seeing 1,301 declines against 1,013 advances, while 174 stocks remained unchanged.

All eyes on US midterm elections outcome

Investors are now closely tracking the outcome of the US midterm elections, as voting closed on Tuesday. Democrats have secured an early victory in their bid to regain control of the Senate after two years of President Donald Trump's administration. Early results began to offer an indication of the midterm outcome, with the campaign shaped by voter concerns over the rising cost of living and higher fuel prices following the US-Israel war against Iran.

Early trends are also hinting at a Democrat win in the House of Representatives. This would mean Democrats’ control over the entire Congress, marking a major setback for US President Donald Trump’s Republican party.

For India, the implications are likely to be more geopolitical than directly market-related, according to Emkay Research. It noted that Democratic control of Congress may increase scrutiny of tariffs and immigration but is unlikely to materially change these frictions. A likely re-escalation of the Iran conflict after the midterms will continue to weigh on India’s balance of payments, foreign exchange, and markets, it said.

ICICI Global Markets, however, does not expect a Democrat sweep in the midterm elections to alter the course of the Middle East war, as the previous attempts by Congress to end the war were unsuccessful. “A split Congress, however, may increase the chances of a government shutdown as different policy priorities of Democrats and Republicans lead to a gridlock on budget and spending. Shutdowns significantly lower growth rates in the affected quarter, depending on their extent and length,” it noted.

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What lies ahead for Dalal Street?

There is a distinct change in the market mood now, and this has changed the market construct, too, said V K Vijayakumar, Chief Investment Strategist, Geojit Investments. He noted that the principal factor that has changed the market mood is the sudden reversal of the FII stance towards India. The sustained selling by FIIs have been weighing on the market for the last two years. This is changing now. In five out of the last six trading days, FIIs have been buyers in the market, buying stocks for Rs 18,661 crore, the analyst pointed out.

“Importantly, the buying volume is increasing. Good corporate earnings and the attractive valuations in large-caps is providing the fundamental support to the rally. Weakening of the AI trade also has facilitated the return of the FIIs,” he said.

Even though the market revival can have a widespread character, this rally is likely to be led by the large-caps which have the potential to attract big FII flows, according to Vijayakumar. “The rally can be strong and can sustain since there will be short covering in many large-caps. Leading financials have more room to move up.”

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Technical view on Nifty

The nearest peak for Nifty is 24,378, seen during August. However, the index having moved closer to the upper band of 23,500-23,800, which was the target range pencilled in on Monday, Anand James, Chief Market Strategist at Geojit Investments, prefers to go in today with expectations of volatility.

“While we retain a fair possibility of seeing 23,990, within this construct, slippage past 23,700 will be taken as a weakening signal,” he warned.

Disclaimer: This article has been written by Debaroti Adhikary, who is not a SEBI-registered Research Analyst or an Investment Adviser. Debaroti Adhikary and his/her ‘relative(s)’ (as defined under Section 2(77) of the Companies Act, 2013) do not hold any financial interest in the companies mentioned in this article as of the date of publication. The views/recommendations mentioned in this article, wherever applicable, are those of the respective SEBI-registered Research Analyst/brokerage and have been reproduced/reported with due attribution. They should not be construed as the views or recommendations of The Economic Times Digital or the journalist. Readers are advised to consider the original research report and make their investment decisions based on their own assessment. Brokerage disclaimers here.