Explained: What has propelled Sensex above 60,000 mark

What’s fuelling the rally?

The return of foreign portfolio investors (FPIs), who were sellers in the last three months, has given a new thrust to the market momentum. FPIs had invested Rs 2,176 crore in the last two days, indicating that they have faith in Indian markets. They had pulled out Rs 35,493 crore in December, Rs 39,901 crore in November and Rs 25,572 crore in October amid indications that the US Federal Reserve will tighten the monetary policy and hike interest rates to tackle inflation.

The Sensex, which shot up by 22 per cent in 2021, gained 1600 points on Monday and Tuesday due to FPI support.
Other global markets witnessed a positive start to 2022, with markets from Europe to Asia shrugging off worries the Omicron coronavirus variant could choke the global economic recovery.

“Dow Jones setting a new all-time new high when the number of daily Omicron cases crossed one million in the US might appear as a paradox, but this is a clear message from the market that the fast-spreading less virulent variant of the virus marks the beginning of the end of the pandemic. Also, most countries are not imposing fresh restrictions impacting economic activity,” said V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services.

What are the risks ahead?

There could be bouts of volatility going ahead as concerns over rising inflation, higher interest rate scenario and increasing cases of Omicron would keep investors on edge.

If Omicron cases surge further and states impose lockdown, there’s a possibility that the economy, which has been on the comeback trail, will be hit.

Further, if the US Fed tightens too fast, there could be FPI outflows, impacting the domestic market and the rupee.

Investors are also awaiting the third quarter earnings reports from the corporate sector. Traders are hopeful that the RBI would keep the reverse repo rate unchanged in the next policy review and maintain the accommodative stance amid an increase of Covid cases in India.

Will the rally continue?

If FPIs remain buyers and domestic institutions continue to support the market, key stock indices are likely to gain further. Retail investors and mutual funds are expected to pump more money into the market as witnessed in 2021. Moreover, the financial system is still flush with liquidity.

The Union Budget in February and central bank’s decision in the next policy meeting will give further direction to the markets.