The stock markets have been seeing a stellar run right from the beginning of this week, closing at record highs for three consecutive days. Thanks to the low inflation data release on Wednesday, the Sensex opened with a wide-gap of over 90 points and the surge continued as the Sensex breached the psychological 32,000-mark for the first time.
The 30-share BSE Sensex gained 232.56 points to close at 32,037.38 while the broader 50-share NSE Nifty closed at 9,891.70, gaining 75.60 points.
Not so long ago, on April 26, the Indian stock markets celebrated a historic event, that of the benchmark index Sensex closing above 30,000 points for the first time.
Exactly eleven weeks since then, it is celebration time again as the Sensex crossed another milestone of 32,000 points on Thursday.
Stock markets have rallied sharply over the past few months. The S&P BSE Sensex, the broad market indicator, touched an all-time high of 31,311 on June 19, 2017. It has delivered a year-to-date return of 16 per cent (till June 29). The S&P BSE Midcap and the S&P BSE Smallcap indices have risen 21 per cent and 27 per cent, respectively, over this period.
Traders said ample liquidity in the market is driving the current phase of the rally amid optimism over earnings from blue-chip companies. Consumer goods and banking stocks had a good day. The FMCG index rose the most by surging 1.58%, followed by capital goods and banking.
The rally, which was largely dominated by large caps, was driven by a likely rate cut after lower retail inflation, positive global cues post a dovish statement from the Federal Reserve Chair Janet Yellen on further rate hike and overcoming the fears of disruption due to the introduction of GST.Yellen’s appeared before the Senate Committee on Banking, Housing and Urban Affairs as part of her semiannual Humphrey-Hawkins testimony.
Foreign investors have been supporting the ongoing rally by pumping in sizeable money into domestic markets. Foreign portfolio investors (FPIs) bought shares worth a net Rs361.25 crore on Wednesday while domestic institutional investors (DIIs) sold shares worth a net Rs330.58 crore, showed provisional data. Buying activity also rubbed off on broader markets, with mid-cap and small-cap indices ruling up.
Not only large-cap but lot of mid & small caps participated in the rally. More than 140 stocks hit 52-week highs today, including 58 stocks that touched all-time highs.
Recently listed AU Small Finance Bank continued its rally, trading near Rs 700 level against issue price of Rs 358. The stock shot up 95 percent in four consecutive sessions since listing on Monday.
Housing & Urban Development Corporation (HUDCO), which listed in May, also continued to surge for the fourth consecutive session, which gained more than 10 percent to move near triple digit mark.
Large caps like IndusInd Bank, Maruti Suzuki India and Power Grid Corporation of India were trading at all-time highs today while Grasim Industries, ICICI Bank, Tata Steel and Hindustan Unilever traded at fresh 52-week highs.
Eris Lifesciences, Bharat Rasayan, Bodal Chemicals, Carborundum Universal, Dalmia Bharat, Garware Wall Ropes, GNA Axles, Dilip Buildcon, Future Consumer,
Future Retail, L&T Finance Holdings, Mangalam Cement, Navin Fluorine, Shankara Building Products, Somany Ceramics and Uflex also touched new highs today.
Other well-known names like Tata Global Beverage, Rico Auto, Goa Carbon, Marico, Bajaj Finance, Interglobe Aviation, NBCC (India), United Spirits, GRUH Finance, Aditya Birla Money, Jindal Steel & Power, PTC India, KEC International also hit fresh 52-week highs.
As per past trends typical bull market is known to have three phases: accumulation phase, that marks the end of a downtrend and informed investors start lapping up shares at cheaper prices; the public participation phase, when risk appetite develops among the general public and retail investors throng the market; and the excess phase, when the bullish sentiment turns into exuberance; informed investors being to bail out.
Retail investors are already crowding Dalal Street either through mutual funds or direct equity participation, and repetitive ad campaigns of domestic brokerages signal the undercurrent of a major spike in trading volume.
Market veterans also see other signs that suggest the buoyant mode is rapidly turning into exuberance. They are of the opinion that there is a lot of liquidity in the market which is the major force behind this surge. According to NSE data, FIIs (Foreign Institutional Investors) have invested $8.24 billion and domestic investors have pumped in Rs 24,596.86 crore in Indian markets, in 2017 so far.
“Valuations are stretched. Nifty is trading closer to 19 times forward earnings,” Abhay Laijawala, head of India research, Deutsche Equities told ET.
“A correction in valuations cannot be ruled out if there’s some unexpected development.”
Abhishek Anand, Fund Manager at Centrum Broking said that”GST might lead to savings in the cost of doing businesses. Further, GST, as well as demonetisation, will lead to a significant reduction in a parallel economy over a period. At the same time, savings are moving from physical to financial assets. All these can lead to far higher growth over a long period. But from a shorter term perspective, the valuation looks high. However, as they say, markets can remain irrational for more time than you can remain solvent.”
In the overnight trades, Dow Jones ended 123 points higher, while tech-heavy Nasdaq rose 68 points. Key Asian gauges like Japan’s Nikkei gained 16 points while China’s Hang Seng surged 280 points tracking firm global cues.
The policies introduced by the Narendra Modi-government have provided a sense of optimism in the markets.’Expectations of a rate cut in interests by the RBI (Reserve Bank of India) and economic reforms have made India an attractive destination for investments’, said Sanjiv Bhasin, Executive VP- Market & Corporate Affairs, IIFL.