Sensex, Nifty hit record closing highs as election optimism continues

The benchmark indices ended at fresh highs for a second day in a row as the NDA's victory in the recently concluded general election kept investor sentiment bullish.

The Sensex ended at 39,683, up 249 points, or 0.63 per cent, adding to Friday's gain of 623 points, or 1.61 per cent. The Nifty50 added 81 points, or 0.68 per cent, to close at 11,925. The broader market continued to outperform, with the NSE Midcap 100 index gaining 1.7 per cent and the NSE Smallcap 100 gaining 1.64 per cent. The India VIX index, a gauge for market volatility, continued to cool off, ending at 16.2, down over 40 per cent from the three-year high of 29, which was touched a week ago.

"It is very attractive to invest in mid- and small-caps despite the sharp run up in the past few trading sessions," said Vinod Nair, head of research, Geojit Financial Services. "The undercurrent is expected to sustain in the run-up to the Budget."

Market players said investor focus was likely to shift from large caps to the broader markets on the hopes of the Modi government announcing pro-growth reforms that will help the overall economy. In terms of valuation, the large caps are fairly valued, but broader market offer more upside, said analysts.

The market breadth was positive on Monday, with the advance-decline ratio at 2.3:1.

After the landslide election victory, most brokerages expect the re-elected government to push through challenging reform measures such as privatisation and easing of land acquisition and labour laws.

"A clear mandate implies that the current government policies have resulted in political dividend and are likely to be pursued. We expect continued focus on infrastructure build out and the implementation of schemes/projects targeting the less affluent and rural India," wrote Saion Mukherjee, head of India equity research, Nomura.

Tata Steel rose 5.8 per cent - the most among Sensex stocks. YES Bank, NTPC, and Larsen and Toubro gained over 3 per cent each. Among the losers were IndusInd Bank (down 2.4 per cent), followed by Reliance Industries (down 1.95 per cent).

Market players said investors were booking profits in stocks that had rallied sharply and were deploying funds into beaten-down stocks.

Among the BSE's 19 sectoral indices, 14 ended with gains, with the capital goods index gaining the most.