Nifty Set to Scale 9K on Strong Domestic Inflows
Stock indices extended their gains to a fourth straight day on Monday, ending at an over fourmonth high on Monday owing to a weakening dollar and hopes of a rate cut by the Reserve Bank of India at its monetary policy announcement on Wednesday. The Nifty crossed the 8,800 mark for the first time since September 23 and the BSE Midcap index rose 1% aided by continued inflows from domestic institutions. .
“In the last one month, the US dollar has weakened by about 3% and accordingly we have seen money going into emerging markets,” said Sanjeev Prasad, co-head of Kotak Institutional Equities.
The Sensex gained nearly 199 points on Monday from the previ- ous close at 28439.28 while the Nifty ended 60 points higher at 8,801.05.
Provisional data showed domestic institutional investors bought shares worth ₹ 449.5 crore on Monday. DIIs have pumped in ₹ 6,179 crore into Indian equities so far this year. After buying for the last few sessions, FPIs turned sellers again, offloading shares worth ₹ 403.5 crore. Money managers expect the RBI to cut rates by 25 basis points due to easing inflation and as the government adhered to fiscal prudence in the Union Budget.
Led by metals and banks, midcaps have seen higher domestic flows coming their way. “For midcaps, earnings for the December quarter have been better than expected. Also, banks have cut lending rates, which will lead to lower interest cost,” said Siddhartha Khemka, head-equity research (wealth) at Centrum Broking.
Some in the market expect the Nifty to scale to 9,000 mark in the near term amid strong inflows from domestic institutional investors. With a recovery of 10.4% from the lows hit after demonetisation, the Sensex is just 5.5% away from hitting its record high of 30,024.74 seen in March 2015, while the Nifty is 3.6% away from its record high of 9,119.20.
The highest base (in Nifty call options) is at 9,000. The index can go near that level in February series,” said Amit Gupta, head of derivatives at ICICIdirect.
However, others remain uncertain. Prasad of Kotak Equities said foreign inflows that have come in some trading sessions recently are just passive flows. “If anything changes in the terms of expectation on US dollar or global interest rates, this money could go back quickly. If the US economy recovers, the dollar will again strengthen,” said Prasad, adding that valuations are also expensive.
The Sensex is trading at a oneyear forward price-to-earnings ratio of 16.2, higher than the MSCI Emerging Market index which is trading at 11 times. The BSE MidCap index is trading at 17.4 times.