Bulls on the run, but can the hit 33K by year end?

All eyes on assembly election results on March 11; Federal Reserve’s stance on US interest rates will also decide market movement ahead

Indian equities tumbled sharply after opening at close to a two-year high on Thursday as nervous investors booked profits. The Nifty rose to 8,992.5, just 127 points shy of its all-time high, before closing at 8,899.75, or 0.51% down from the previous close. The Sensex too could not maintain the psychological mark of 29,000 it breached in the morning riding on buoyant US stocks, which touched new records overnight. It closed the day down 0.5% at 28,839.79.

“Profit booking in late afternoon trade dragged indices lower,” said Karthikraj Lakshmanan, senior fund manager (equities) at BNP Paribas Asset Management Co.

“Global markets traded higher after US stocks set new records overnight on growing optimism about global growth, and rising bets of a rate hike in the US this month.”

Hopes of better economic growth has been driving market optimism as India’s economy grew at a healthy 7% in December quarter, much ahead of China’s 6.8% growth. Indicators such as robust vehicle sales in February and an expansion in purchasing managers’s indices are also likely to give legs to the rally in the coming days.

Moreover, the global markets rally also supported buying in domestic markets. Overnight, US markets soared to an all-time high, with Dow Jones Industrial Average closing above 21,000 for the first time, buoyed by President Donald Trump’s speech to Congress on Tuesday.

Many market analysts are optimistic that the rally will sustain. Morgan Stanley, for instance, has raised its December target for the Sensex by 10% to 33,000. It also upgraded its fiscal 2019 earnings growth expectation for the Sensex to 24% from 15%.

There is “strong demand for stocks and a potential valuation overshoot, particularly if we add domestic demand from households,” the brokerage said in a note to clients.

“Net demand for Indian equities is rising rapidly. Domestic investors are already significant buyers of Indian equities and corporate buying is adding to this demand. Consolidation should lead to better margins and better earnings growth.”

To be sure, the ride to 33,000 is unlikely to be smooth.

Even in the near to medium term, there are events whose outcomes will be keenly watched by investors such as the results of the assembly elections on March 11 and the meeting of the US Federal Reserve’s open markets committee. Hawkish comments from two Federal Reserve officials increased expectations of interest rates hikes. However, analysts said an interest rate hike is already factored in the market.

Anand James, chief market strategist , Geojit Financial Services, added that the market has already factored in a 2-3 hikes in this year. Last year in December, the Federal Reserve had said that it would raise interest rates three times in 2017.

That apart, high valuations and a good and services tax rollout, that may impact corporate earnings in the second half of the year are other pitfalls.