Sensex flirts with 30,000; all eyes on Q4 earnings
Foreign funds continue to stay invested; stock movement ahead will depend on results season, GST implementation
The benchmark equity indices logged fresh closing highs on Wednesday, with BSE’s 30-share Sensex crossing the psychologically-important 30,000mark for the first time in two years as foreign funds continued to bet on the medium and longterm structural growth story in Asia’s third-largest economy.
The 30-share Sensex closed 0.21% or 64.02 points higher at a record close of 29,974.24 points. Earlier in the day, it rose as much as 0.33% or 97.26 points to a 30,007.48 points, a level last seen on 23 March 2015.
“Money flows where more money can be made,” said Nirav Sheth, head of equities at SBI Cap Securities Ltd, referring to strong inflows into Indian equities. “Earnings are going to rebound, and that seems to be the statistical bet. Also, interest rates are lower than before.”
Several sectoral indices including those for finance, consumer goods, property companies and capital goods touched at least a 52-week high spurred by foreign investment inflows.
Foreign institutional investors have invested a net of $6.2 billion in the first quarter of the year with $4.6 billion flowing into the domestic market in March alone.
However, investors await the corporate earnings in the March quarter for more clarity on whether the rally will be sustainable in the short run. Software services exporter Infosys Ltd will kick start the earnings season as it unveils its March quarter report card on April 13.
The continuation of the rally “would depend on the earnings session and euphoria created by GST (goods and services tax) implementation,” said Sanjay Guglani, chief investment officer of Singapore-based Silverdale Funds. The GST looks set to be implemented by July 1.
Secondly, valuations continue to be high. The Sensex currently trades at 17.5 times one-year forward earnings compared with the five-year average of 14.78 times, according to Bloomberg.
“Valuations are expensive for large parts of the Indian market,” said Sanjeev Prasad, senior executive director and co-head of Kotak Institutional Equities.
Overall valuations are pulled down by the large weight of commodity and low (price to earning) banks in the indices, he added. “On a bottom-up basis, valuations are quite expensive for consumer staple and discretionary sectors with valuations trading north of 35 times fiscal 2019 earnings per share for most of the names. The same applies for industrial names.”
Seventeen of 30 Sensex stocks closed higher. Reliance industries contributed the most to the gains for Sensex stocks on Wednesday with a 3.19% rise. It is only short of a 3% rise to overtake Tata Consultancy Services as the country’s most-valued firm.