What led the Rally Today?

Today’s Market Update

It was a good day for the markets, buoyed by several positive factors. The primary lift came from the Bihar exit polls, which suggested a probable sweep for the NDA, although exit polls are not final. This created a strong "feel good" sentiment in the market.

Secondly, some corporate results, particularly from companies like Asian Paints, surpassed market expectations, which in turn sparked renewed enthusiasm for FMCG and consumption stocks.

Thirdly, rumors of a potential US-India trade deal began circulating in the US, and IT stocks immediately took this cue and ran hard.

Finally, the new listing of the stockbroking company Groww today was a huge success, debuting with "flying colors." These small positive news flows collectively aided the market this morning.

• The Nifty has now closed at 25,875, putting it barely a percentage or a percentage and a half away from its all-time high, indicating the index is currently in very good shape.

• While Nifty Junior made less ground, up 0.12% for the day, Mid Caps ran up 0.77% and Small Caps also broke a three-day pause to gain 0.74%.

• The Bank Nifty almost made a new high, closing near yesterday's close with a 0.23% gain.

• Gold was flat today, up 0.17% at 12,450.

• Silver made further gains, rising 1.42%.

Other Market Triggers

• Looking at stock performance, the market generally moves up when Reliance leads, and today it was up 1.2%, sitting very near its highs.

• Other gainers included ONGC, Oil India, and the IT pack (TCS, Infosys, Wipro).

• There was also some recovery in the Bajaj stocks that were previously hammered. Adani Enterprise, Asian Paints, and Adani Ports were also moving up.

• In the Nifty Next 50, there was more red than green overall, with some stocks like HAL, TVS Motors, Britannia, VBL, ABB, Vedanta, DLF, Chola Finance, and Bajaj Holding seeing losses.

• However, gains were seen in LTIM, Naukri, Solar, Hyundai, Bosch, Adani Green, ICICIGI, and Canara Bank.

• The Mover of the Day was Kirloskar Oil Engines, which jumped 15% (closing up 11.98% above the 1,000-point mark) on the back of better-than-expected quarterly results.

U.S. Market Update

• In US Markets, the Dow Jones did well in the previous session, although the S&P 500 was up less at 0.2%, and the Nasdaq was actually down 0.25%.

• The rally was led by FedEx at +5%, followed by Merck, Pfizer, Amgen (a lot of pharma names in the top leadership), and Nike at 3.87%.

What to watch next ?

• Silver is now just a stone's throw away from its previous high, and crossing that level is expected to provide a renewed tailwind for silver prices going forward.

• The huge three-session rally in the IT space is predominantly attributed to speculation that the India-US trade deal is through.

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What To Read This Week ?

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Right way to compare India & US Market Returns

💡 The CNX 500 / M2 Money Supply Ratio: Unpacking Market Dynamics

A fascinating data point, shared by Mr. Zafar Shaikh (who writes as Invesys Capital on X), offers a unique perspective on the relationship between stock market growth and the money supply. He created a ratio chart comparing the CNX 500 Index to the M2 Money Supply. This ratio acts as an indicator, showing whether the market's increase is outpacing the new money being added to the system, or vice-versa.

📈 Interpreting the Ratio's Movements

The movement of this ratio offers clear signals:

• When the chart moves UP (Ratio Increases): This signifies that the Stock Market is growing significantly faster than the money supply being added to the system. This typically points to a period of market overheating relative to systemic liquidity.

• When the chart moves DOWN (Ratio Collapses/Decreases): This indicates that the Money Supply (M2) is expanding rapidly, while the market remains stagnant or is falling. A sharp collapse often occurs when central banks inject liquidity (expand M2) during a market downturn or recession to stabilize the economy.

📉 Historical Market Peaks and Bottoms

Analyzing the historical chart reveals how this ratio has successfully identified major market turning points:

• Dot-Com Boom (Late 1990s/Early 2000s Peak): The ratio spiked sharply upwards. This confirms that the stock market was rising dramatically with disproportionately less growth in the underlying money supply, suggesting an unsustainable bubble.

• Post-Dot-Com Recession & Global Financial Crisis (GFC) (2001-2003 & 2008-2009 Bottoms): Following the peaks, the ratio collapsed heavily. In both instances, the market fell, and simultaneously, the money supply (M2) expanded aggressively (denominator increased) as a countermeasure, leading to a massive drop in the ratio.

• Post-GFC and Post-COVID (2020 Onwards): After the GFC, the market entered a somewhat sideways environment until 2020. Post-COVID, the market saw rapid growth again. However, despite the market being at absolute record highs, the ratio has not yet reached its previous peaks. This is because the money supply (the denominator) has also been growing very rapidly, effectively dampening the ratio's climb.

🎯 Current Market Status: Neutral Territory

The current reading suggests the market is in a "neutral" territory.

While the market is high in absolute terms, the persistent and rapid expansion of the money supply is keeping the ratio lower than previous historical bubbles.

• If the market were to increase significantly in the coming years without a corresponding increase in the money supply, the ratio would eventually return to the "bubble" region (previous peaks), potentially preceding a major recessionary environment.

• However, the ongoing need to rapidly increase the money supply (M2) to support the market and economy makes this scenario less likely in the immediate future.

The conclusion drawn is that because the money supply rarely contracts (it either grows or stagnates), and given the current neutral standing:

• A sharp, absolute drop in the market seems less probable unless triggered by a significant external event.

• The market appears to be standing at a "long-term average" and a reasonably good rate.

Meme Of The Day

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