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Sensex, Nifty at record levels... Will the momentum continue?

Monday, March 20, 2017
By Dominic Rebello

Last Friday, the Nifty rose 6.35 points or 0.07% and ended at a new peak of 9,160, while the Sensex gained 63.14 points or 0.21% to close at 29,648.99 points level. The 51 scrip Nifty touched a new intra-day high of 9218.40, while the 30 stock barometer Sensex touched a new 52 week high of 29,824.62 points. Buying picked up after the GST Council last week cleared the two remaining pieces of supporting legislation, paving the way for their introduction in Parliament and state legislatures for its planned rollout in July and sparking interest in FMCG stocks.

The bull run continued for the second consecutive week as, the Sensex surged by 702.76 points, or 2.42%, and the Nifty rose by 225.50 points, or 2.52% due to the positive global cues and the results of the assembly elections in five states.

“Interestingly, FPIs have turned buyers after a long time to the tune of over Rs 6,500 crore last week while DIIs were sellers of Rs 1,500 crore. This saw the Indian Rupee appreciating to almost 18 month high on the expectations of strong inflow from FPIs on new economic reforms. With the second phase of Budget Session of Parliament in process, investors expect the government to complete the process for implementation of the Goods and Services Tax (GST) in this current session. GST is slated to be implemented from July 1, 2017,” said Vijay Singhania, Founder-Director, Trade Smart Online.

“Last week began with the landslide victory for BJP in UP assembly elections and it fuelled a rally in the markets on expectation of several stalled projects and reforms getting their way for clearance. The markets even ignored the interest rate hike by the US Federal Reserve and a rally in rupee further fuelled the indices,” said Abnish Kumar Sudhanshu, Director and Research Head at Amrapali Aadya Trading & Investments.

"Sweeping victory in country's largest state Uttar Pradesh provided strength to rupee on the back of stable government along with hope of more and more bold reforms coming in future without any disturbance in Parliament," he added.  Further, FIIs who had turned to net sellers in the domestic debt as well as equity market post demonetisation, have been taking return flight after seeing the current India scenario, Sudhanshu said.

On the current week trading, he said that further clearance to the GST rollout could give some clue to the market. "We can expect news related to reforms in infrastructure, healthcare and banking to keep proving road to the already surging indices. "Off late, FIIs have become net buyer in the market so it would be interesting to watch sustainable buying pattern, which can pour the liquidity in the market, hence generating positive sentiments," Sudhanshu said.

Vinod Nair, Head of Research at Geojit Financial Services, said a stupendous victory for the BJP in the state elections created a euphoria in the domestic markets last week and Nifty broke its major resistance level of 9000 and continued its upward journey breaking all the psychological levels.

Stating that the under-current was strong as new money from both foreign and domestic investors continued to pour in despite high valuations, he said the current buoyancy in domestic market was largely sentimental driven by political and policy certainty.

"This perhaps has led to reversal in FII inflows despite peak valuation. Valuation may continue to be high unless being impacted by external or domestic factors," he said. He also warned that the inflationary trend was hinting towards RBI following a prolonged neutral stance in the medium term and GST rollout from July brings possibilities of de-stocking and procedural obstacle which is likely to impact earnings in the near term.

"For the week ahead, market will look for more cues on GST rates which is expected to see stock or sector specific actions," he added.  

“The market has indeed given a valid breakout. Sceptics should not be fearful about the markets’ elevated levels. If US can scale newer highs every day, why can’t India go higher with much more robust fundamentals, sensible governance and a great political leadership in place,” said Jimeet Modi, CEO, SAMCO Securities.

'We continue to maintain a positive bias on markets but there is likelihood of some amount of consolidation at current levels after a sharp run up across indices. INR has appreciated to almost 18 month high on the expectations of strong reform process, which will keep government’s balance sheet in good shape,” said Rakesh Tarway, Head of Research, Reliance Securities.

“Almost all the sectoral indices are participating in the rally so far but we still prefer auto, banks and NBFCs over others, at least in the short run. Select stocks from the FMCG and capital goods space also look upbeat. Traders should align their positions accordingly and go for staggered buying, advised Jayant Manglik, President, Retail Distribution, Religare Securities Ltd.

However, the appointment of Yogi Adityanath as the Chief Minister of the country's most populous state, Uttar Pradesh is likely to raise concerns amongst marketmen. FIIs in particularly are the first to react to such news and may trigger the much awaited correction.

Poll win gives wing to FPI money, kitty at $3.4 billion in March
Foreign investors pumped in USD 3.4 billion in the capital markets so far this month, buoyed by expectations that BJP's landslide poll victory is a precursor to "bold reformist policies" by the government. The latest inflow follows a net investment of Rs 15,862 crore in equity and debt last month. Prior to that, FPIs had pulled out a total of over Rs 80,000 crore in October-January.

According to depository data, foreign portfolio investors (FPIs) infused a net sum of Rs 17,124 crore in equities during March 1-17 and another Rs 4,950 crore in the debt segment, translating into a combined inflow of Rs 22,074 crore (USD 3.44 billion). Investors believe that the government will continue with its bold reformist policies following a huge win for the NDA in UP and Uttarakhand, Bajaj Capital Senior V P and Head Investment Analytics Alok Agarwala said.

"This decisive win in the largest state by population (UP) is positive for FPI sentiment and resulted in higher FPI inflows as overseas investors get more bullish about the continuance of the reforms process in the country," he explained. Geojit Financial Services Chief Market Strategist Anand James said: "The prospects of a gradual US rate hike look to have improved the risk appetite. This should also mean, save a negative surprise from monsoon forecast, Q4 numbers should prompt investors to be forward looking."

So far this year, FPIs have invested Rs 25,850 crore in equities and Rs 8,591 crore in debt, taking the total inflow to Rs 34,441 crore.

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