Domestic equity indices rode high in May on the back of encouraging domestic and global cues. Key benchmarks CNX Nifty and S&P BSE Sensex soared 7.97% and 8.03% respectively. On the domestic front, hopes of a stable government coming into power became a reality on May 16 with the Bharatiya Janata Party (BJP) winning 282 seats independently and the BJP-led National Democratic Alliance (NDA) securing 336 out of 543 seats. Sentiments got a further boost on hopes that the new government would bring in more reforms, stimulate the domestic growth rate, enhance the overall business environment and lift investor confidence. FIIs continued to support the markets, evident from the strong inflows during the month. FIIs net bought equities worth Rs 16,512 cr in May compared with buying of Rs 10,182 cr in the previous month. Better-than-expected January-March earnings from index heavyweight SBI also augured well for the domestic equity market. On the international front, optimism about the US economy following the release of the positive economic data and the US Federal Reserve’s confidence in the US economic prospects by further reducing its monthly bond buying program to $45 bn from $55 bn gave sentiments a shot in the arm.
Gains were, however, capped on intermittent profit booking, volatility amid expiry of May F&O contracts and geopolitical tensions between Russia and Ukraine. Cautiousness ahead of Prime Minister Narendra Modi’s swearing-in ceremony and his cabinet appointments also arrested the rise.
All S&P BSE sectoral indices ended higher in May except for S&P BSE Healthcare and S&P BSE IT. The S&P BSE Realty (top performer) and S&P BSE Power indices soared nearly 36% and 28%, respectively, on anticipation that the new government might fast-track hindered projects, introduce reforms and revive the economy. The S&P BSE Healthcare index was the top loser, down 4.11%, as investors shunned the defensive bets. The S&P BSE IT index fell 3.39% following strengthening of the rupee against the dollar and sell-off in IT major Infosys post the resignation of its president, B.G. Srinivas.
In June, the equity market is expected to be guided by the news flow on the policy front by the new government. Retail participation in the equity market is expected to increase, which would influence the market. Domestic macro-economic data and normal onset of monsoons would also have a bearing on investor sentiments. we expect the CNX Nifty to end the month at around 7,300-7,500 and Sensex at 24,450-25,100.