Nifty breaches 10,000-mark; ends lower on profit booking

The benchmark Nifty on Tuesday breached the 10,000-mark for the first time, but a wave of profit booking dragged the gauge down to close at 9,964.55.

The 50-share index had first topped the 9,000-level in intra-day trade on March 3, 2015. The index, however, only managed to close above the 9,000-mark two years later on March 14, 2017. This time around experts don’t expect that long for the index to achieve the five-figure mark at close as investor sentiment and institutional flows remain strong even as high valuations remain a concern.

Those in the bull camp expect corporate earnings to improve, economic growth to accelerate, and government reforms to feed a strong rally. Others say a correction is due following a sharp appreciation in domestic equities this year, which have stretched valuations.

After touching an intra-day high of 10,011, the Nifty on Tuesday closed at 9,964.55, down 1.85 points, or 0.02 per cent. The Sensex ended at 32,228.27, down 17.6 points, or 0.05 per cent.

The NSE has surged 22 per cent this year, just behind South Korea's and Hong Kong's markets, in a broad-based rally fuelled by a surge in foreign investments and flows from retail investors buying into mutual funds for the first time.

Both categories have bet heavily that economic growth will accelerate from 6.1 per cent in the January-March quarter, boosting corporate earnings. Hopes are also high for economic and fiscal reforms after the government unveiled a national goods and services tax (GST) this month.

Still, valuation concerns linger: The NSE was trading at around 21 times 12month forward price-to-earnings, compared with a five-year average of 17.91.

“In the context of current fundamental, 10,000 looks like dizzy. Due to demonetisation and GST disruption, quarterly results will not help the cause. On the other hand, domestic inflows are very strong and acting as a strong resistance for a market correction. From a short-term perspective market appears overheated and a correction cannot be ruled out,” said Motilal Oswal, chairman and managing director, Motilal Oswal Financial Services.

An extension of the rally in the near term will probably depend on the outcome of earnings of India's blue chips, with the bulk of results yet to be released. Besides, not all analysts are convinced of a recovery as a dearth of private investments risks hampering growth.

“In the medium term, we are not very positive about the market because of high valuations and a muted outlook for the current corporate results season,” said Vinod Nair, head of research at Geojit Financial Services.

But most analysts agree that prospects are brighter over the long term, as retail investors continue to invest into mutual funds via monthly installments.

Deutsche Bank estimates retail investors have ploughed a record $31 billion into Indian equities through mutual funds since May 2014, more than the estimated $21 billion overall by foreign investors over the same period.

Among the top gainers on Tuesday was Axis Bank, which rose nearly 2 per cent, followed by Bharti Airtel which added 1.8 per cent and TCS which gained 1.5 per cent.

On Tuesday, overseas investors bought shares worth ~271 crore, while domestic investors were net sellers to the tune of ~209 crore.