The Sensex has gained in the month before elections in each of the previous six elections, with the biggest advance coming in 2009 when the Congress-led United Progressive Alliance won a majority.
The gains in the run-up to elections can be explained by a mix of expectations for policy reforms and election spending, according to traders. A pre-election rally is definitely underway. Flows, positioning, macro are all pointing towards its extension in the coming months.
Solid foreign investor flows, a more stable rupee on the back of a narrowing current account deficit are more than offsetting global uncertainties such as the US Federal Reserve's tapering of its monthly bond buying.
Overseas investors bought Indian shares worth Rs. 737 crore yesterday, extending their buying streak to a 14th consecutive day. In all, they have bought shares worth Rs. 6,000 crore in the previous 14 sessions.
After the UPA rule has come to an end, there is less pressure on domestic institutions to sell stocks to support the government's disinvestment programme, which was the case for last several months,
Meanwhile, the rupee has pulled back below 61.50 per dollar as India's current account deficit narrowed to a four-year low.
The Sensex gained 237 points or 1.1 per cent to end at a record close of 21,513.87, while the Nifty ended up 72.50 points at 6,401.15 Banking, metal, energy and realty stocks led the gains, while IT and pharma stocks underperformed.
On the Nifty, 42 stocks closed higher. Jaiprakash Associates surged 8.9 per cent and was the top Nifty gainer. Realty major DLF advanced 5.1 per cent.