Sensex, Nifty hit record highs on hopes of revival in Q3 earnings, rural demand

MUMBAI: Benchmark indices hit new lifetime high son Monday on investor optimism of a revival in December quarter corporate earnings and expectations that higher government spending on the rural sector would boost demand in the countryside.

The Sensex closed at a record 34,352.79, up 0.58%, after rising to as much as 34,385.67 in intra-day trading. The NSE Nifty ended 0.6% higher at 10,623.60 after rising to as much as 10,631.20.

Analysts said favourable expectations of the budget that will be presented on February 1 and hope sofa corporate earnings turnaround had lifted investor sentiment.

“Revival of corporate earnings and hopes for an expansionary budget with increased focus on infrastructure demand and rural spending are boo sting markets ,” said Ajay Bodke, CEO and chief portfolio manager, Prabhudas Lilladher Pvt Ltd.

The government is likely to enhance its focus on agriculture and rural themes to address farm distress in parts of the country, analysts said. The government is expected to increase spending on rural infrastructure like roads and power projects. Procurement prices for crops may be raised.

A rally in global markets also supported Indian equities. In Asia, South Korea’s Kospi and Jap an’s Nikkei gained around 1% in the day.

“The Indian markets rally is being driven by the global markets rally. Indian equities do not work in isolation and have in fact benefitted from the global asset inflation,” said Sanjay Mookim, India equity strategist at Bank of America Merrill Lynch.

Domestic data suggests the economy is still on shaky ground. The government estimates gross domestic product (GDP) will grow by 6.5% in the year to 31 March, down from 7.1% growth clocked in 2016-17.

Callingita “the curious case of all Indian markets”, Kotak Institutional Equities said in a report on 8 January, “We struggle to understand the divergent reactions of India’s bond, currency and equity markets to the sharp deterioration in India’s macroeconomic position over the past three months. The bond market seems tobe right ly worried about the downturn in India’ s macroeconomic conditions but the currency and equity markets appear to be fairly nonchalant about the same. The Indian markets may have discovered their own version of ‘conscious uncoupling’.”

According to the research firm, continued strength of the Indian equity market despite higher bond yields, inflation and balance of payment suggests that the markets are very confident of a corporate earnings rebound that would offset weak macroeconomic factors.

Historical data suggests that Indian markets tend to fall more often than gain in the run-up to the budget announcement. In the three months leading up to the budget, the Sensex has fallen seven times in the past 11 years. On the other four occasions, it has gained, rallying as much as 14.37% one time, according to Bloomberg data.