Decoding the Factors Behind Nifty and Bank Nifty's Record-Breaking Rally with the Biggest Single-Day Gains Since October 2022

Why Nifty, Bank Nifty hit all-time highs? What drives the biggest single-day gains since Oct 2022.

the recent mandate has thrown a positive surprise for the markets, which sees a greater probability of the continuation of existing government policies beyond 2024. The Nifty and Sensex have surged around 14% year-to-date.

The action in the domestic market on December 4 was nothing short of euphoria as key indices Nifty 50 and Nifty Bank hit new all-time highs, clocking their biggest single-day gains since October 2022. After a sharp gap-up open, both the indices held on to their stellar gains as investors celebrated the BJP's clean sweep in three key states.

The assembly election results for key states of Madhya Pradesh, Rajasthan, Chhattisgarh, and Telangana have thrown a positive surprise for the markets as they are now assigning a greater probability of continuation of existing government policies beyond 2024 and decisive election mandates.

This development removes a significant short-term overhang from the markets. We believe that the near-term markets are likely to see strong interest, led by a rebound in industrial growth and a benign interest rate trajectory.

At close, the Nifty was up 419 points or 2.1 percent higher at 20,687 while Nifty Bank settled with gains of 1,617 points or 3.61 percent at 46,431. Both the indices hit a record high of 20702.65 and 46484.45, respectively, earlier in the session.

The image of the BJP as a pro-reformist and the performance of the economy on various fronts, especially during the COVID period and gloomy global economic situation, have provided market participants confidence that a dual-aided right-wing government is beneficial in the longer term.

Gains in the Nifty 50 were also aided by strong gains in heavyweight banking names like HDFC Bank, ICICI Bank, IndusInd Bank, SBI, Kotak Mahindra, and Axis Bank which soared 2-5 percent.

Gautam Duggad of Motilal Oswal Financial Services believes that gains in financials came because the valuations are extremely attractive for the sector.

Madhusudan Kela of MK Ventures also agrees as he feels the financial space has a favorable risk-reward as they did not meaningfully participate in the last 12-18 months.

Other frontline Nifty 50 stocks that stole the show were Eicher Motors, Adani Enterprises, Adani Ports and Special Economic Zone, BPCL, and L&T as they soared 4-7 percent. Moreover, the strong momentum in the market was such that 44 out of the 50 stocks on the Nifty closed in the green while all constituents of Nifty Bank settled with stellar gains.

Not just that, the market capitalization of listed companies hit a record high of $4.10 trillion.