Indian markets surging to all time highs, IPO frenzy on top: What's happening?

The BSE Sensex climbed up by as much as 1,400 points during the day, to close at 84544.31.

Nifty wasn't far behind, inching up over 1% during the day to close at 25790.95.

What is driving this rally? And this is not just the secondary market. The primary market, i.e. IPO subscriptions are also witnessing a stellar surge in investor interest.

The IPOs of Northern Arc Capital and Arkade Developers, which closed yesterday, were oversubscribed 117 times and 113 times, respectively, largely on the back of significant investments made via the QIB and NII categories.

But the question is, what is driving this frenzy, which comes on the heels of the Fed's recent announcement slashing interest rates by a significant 50 basis points?

Experts explain that the most direct impact of the rate cut comes in the form of higher foreign capital inflows into emerging markets like India.

The impending anticipation of this is what is driving the rally witnessed in the stock market today. As per data from NSDL’s FPI monitor, foreign investors infused a net total of Rs 2,341.64 crore in Indian equity markets via stock exchanges, as of September 19th, 2024.

Data shows that September has seen inflows of around Rs 27,862 crores in first half of September. This is around 4 times the flows seen during the entire month of August.

Just within this week (till September 19), FPI inflows have touched Rs 5,419 crores.

Palka Arora Chopra. Director, Master Capital Services Ltd explains that the current upswing in the stock market results from market forecasts of increased foreign inflows into India following the Fed rate decrease.

“This, combined with the fact that US jobless claims are at their lowest since May 2024, have alleviated concerns about the US labor market failing, rather, it is simply slowing down. This is also why the Dow Jones Industrial Averages and S&P 500 index surged to 1.7%, and Asia saw a rise in markets across Korea, Japan, and Hong Kong”, she continued.

Riding on the tide of higher foreign inflows is the strengthening of Indian Rupee. Already, the rupee has regained strength from a high of 84.0 to 83.7 over the last week, and this trend may continue in the near term.

Santosh Meena, Head of Research, Swastika Investmart Ltd notes that historically, emerging markets tend to outperform during the onset of a rate-cut cycle in the U.S.

“Indian markets, backed by robust fundamentals, remain resilient despite concerns over valuations.
Large-cap stocks, particularly in the private banking sector, continue to look attractive, fueling the current bullish momentum. This positive trend is expected to persist unless significant negative developments arise on the domestic or global front”, he highlights.

What should your investment strategy be?

Do not look to enter the market only when it hits an all-time high. Data from 1991 to March 2024 suggests that the market has only hit all time highs a total of 22 times, averaging one such event every 1.5 years.

If you are already invested in bluechip or large cap companies, do not cash out in the lure of market touching all-time highs. Instead, this is a good time to rebalance your portfolio, and make more allocations to equities, in case you have a debt-heavy portfolio. Do not discontinue your SIP investments in mutual funds, hoping to buy more units when the markets invariably crashes.