The Indian stock market experienced a strong recovery from the Corona virus downturn in 2021, thanks to positive sentiments among investors, stimulus programs, the return of FII, doubts over China's opening, and whatnot. This recovery was particularly robust compared to the struggles of Chinese stocks, which had been a major destination for emerging-market investors. The benchmark Sensex, ahead of US Federal Reserve Chair Jerome Powell's congressional testimony, hit its all-time peak of 63,588.31 in intra-day trading on June 21, 2023, surpassing the previous peak of 63,583.07 recorded on December 1, 2022. Also, around May 26, 2023, the Nifty midcap broke its all-time high, while the Nifty has yet to breach its previous high of 18,887.60.

What's driving this stock market rally?

The stock market benchmarks have experienced challenges due to global economic weakness, higher interest rates, and inflation. However, the benchmark has gained due to healthy macroeconomic indicators, better-than-expected March quarter numbers, and sustained foreign capital inflow.

The market is discounting the no-recession scenario in the US, as the economy has remained resilient despite the Federal Reserve's ten consecutive interest rate hikes. The Federal Reserve, in its last meeting, flagged a pause in rate hikes as of now but has failed to generate a noticeable slowdown in economic activity.

People in the US have been sitting on low-mortgage houses; credits collected during the corona led to substantial excess savings, and strong consumer confidence have continued to support consumer spending into the fourth quarter of 2023.

China's stimulus may not be able to significantly push demand due to its serious housing sector issues and the need for more than just rate cuts. Foreign institutional investors (FIIs) have been a catalyst for Indian stocks in the first quarter of FY24. The slowing Chinese economic rebound and loss of momentum have marched institutional investors away from China, and China's loss is India's gain.

India's mid- and small-caps are experiencing significant activity, with the monsoon performance being a concern for bulls. Benchmark indices are taking steps towards lifetime highs on the back of PLI schemes offered by the government to give a boost to the manufacturing base in India, while the broader market and penny stocks remain on the fast track.

India's investments in fixed assets reached a decadal high in the fourth quarter of FY23, with GFCF at 35.3% of the country's GDP. The Indian government's spending has led to this high, with capex up by 22.9% YoY in the last quarter of FY23. Private entities are also expected to expand capacity, as industry utilization has hovered between 74-75% in the previous year on average. According to the President of CII, R Dinesh, sectors like cement, steel, and machinery are seeing more than 80% utilization, indicating the time for capital formation. Private sector capex is already present, with 90–95% utilization in the services sector, such as hotels and airlines.

Banks are in good shape this time to lend credit to corporations. According to India's rating agency reports, banks' net non-performing assets (NPAs) have dropped to 1% in FY23 after a massive clean-up by the RBI, while gross NPAs are at 4%. Public sector banks (PSBs) GNPA dropped from a peak of 14.1% in FY18 to 5.0% in FY23, while private sector banks GNPA decreased to 2.3% from 6.3%.

Top Index Component that helped the Sensex / Nifty inch higher