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The Indian stock market experienced a remarkable surge on Thursday, with the Sensex and Nifty reaching record highs, largely attributed to the massive success of the Bajaj Housing Finance IPO. This unexpected upturn came as a surprise to many market analysts, who had not predicted such a dramatic rise. For most of the day, the Nifty struggled to cross the 25,000 mark, but a significant shift occurred after 2 PM, pushing the market upwards.
The Bajaj Housing Finance IPO played a pivotal role in this surge. The IPO, which aimed to raise ₹6,560 crore, attracted a staggering ₹3.24 lakh crore in bids, demonstrating immense investor confidence. Two other IPOs that closed for subscription on Wednesday, Kross and Tollins Tyres, also experienced healthy demand. In total, nearly ₹4 lakh crore of investor wealth was blocked in these IPOs due to the ASBA mechanism.
The ASBA (Applications Supported by Blocked Amount) mechanism requires investors to block funds in their bank accounts when applying for an IPO. If the IPO is successful, the funds are debited from the account, otherwise, they are released. The large sum of capital blocked for the IPOs was subsequently freed up, which many analysts believe contributed significantly to the market surge. The influx of these funds, previously unavailable for trading, likely fuelled the buying activity, pushing the Nifty and Sensex to record highs.
The upturn on Thursday was primarily driven by large-cap stocks. Companies like Reliance Industries, HDFC Bank, Bharti Airtel, Infosys, and SBI were among the top contributors to the Nifty's gains, with all 50 index constituents ending the day in the green. Additionally, Thursday marked the weekly expiry for Nifty 50 contracts, further contributing to the market's recovery. As the Nifty crossed the 25,200 mark, call writers, who had sold call options expecting the Nifty to fall, started covering their positions. This short covering activity, aimed at reducing potential losses, intensified the uptrend, resulting in a sharp surge.
In conclusion, the remarkable rise of the Sensex and Nifty on Thursday was largely attributed to the immense success of the Bajaj Housing Finance IPO and the subsequent release of blocked funds. The large-cap stocks led the charge, and the Nifty 50 expiry also played a role in the recovery. This event highlights the significant influence IPOs can have on market dynamics and the intricate interplay of various factors contributing to stock market movements.
Source: How did the Bajaj Housing Finance IPO take Sensex, Nifty to a record high?