Sensex scales 32k on rate cut hope
Nifty 1 per cent away from 10,000
Stocks continued to gain on Thursday with the benchmark Sensex on the BSE ending above 32,000 for the first time and the National Stock Exchange’s Nifty 50 index coming within kissing distance of 10,000.
Hopes of a rate cut by the Reserve Bank of India (RBI) after consumer price index-based inflation fell to a fiveyear low and the US Federal Reserve’s signal that monetary tightening would be gradual in the world’s largest economy provided firepower to chargedup bulls.
Gaining for a fourth straight session, the 30-stock Sensex closed at 32,037.4, up 232.6 points or 0.73 per cent, while the 50-stock Nifty rose 75.6 points, or 0.77 per cent, to 9,892, 1.1 per cent shy of the 10,000 mark.
It took the Sensex 33 trading sessions to reach 32,000 after closing above 31,000 in May for the first time. The latest 2,000 point (6.3 per cent) gain on the Sensex has come in 54 sessions. The Indian market has gained 20 per cent this year and is among the best-performing globally. The gains have come on the back of nearly ~1 lakh crore of investment by foreign institutional investors (FIIs) and mutual funds (MFs). The Sensex now trades at 20 times its estimated one-year forward earnings, the highest in seven years and above the long-term average of 17 times. Despite lofty valuations, many analysts expect the market to gain further due to robust liquidity and hopes that corporate earnings will soon enter a high-growth zone.
“The Indian market is rallying along with global markets led by re-rating and strong liquidity. Valuations are already at a premium to long-term averages. However, the Indian market is on an economic and earnings up-cycle. Early cycle valuation looks stretched but sustainable,” said Hemang Jani, head, advisory, Sharekhan.
Mutual funds, flushed with investor flows, have been net buyers of stocks for 24 straight sessions. In the past month, they have pumped in close to ~9,500 crore, almost twice that by FIIs. On a year to date basis, MFs have poured in ~43,000 crore, while FII flows have been around ~55,000 crore.
Strong momentum in the market is palpable with 186 stocks scaling new one-year highs on Thursday and many newly listed stocks doubling from their IPO prices. The mid-cap and small-cap indices, too, are trading around their lifetime highs.
Cooling retail inflation saw the yield on the 10-year gilt soften, sparking hopes of an interest rate cut by the RBI at its next policy review meeting on August 1.
“While recent macro data indicates weakness in the economy, the relatively smooth GST implementation has been taken positively by the markets. The weakness in IIP data and lower inflation numbers have made a case for a rate cut by the RBI. Overall, we are positive on the markets in the long term,” said Vaibhav Agrawal, head of research, Angel Broking.
The BSE banking index gained nearly 1 per cent on Thursday, with Yes Bank and ICICI Bank climbing 4.4 per cent and 1.7 per cent, respectively. The BSE FMCG index gained 1.6 per cent, the most among sectoral indices, led by a 3 per cent gain in heavyweight ITC.
The Fed’s statement also buoyed investor sentiment and saw most global markets posting gains.
Many believe a further upside could be capped following the sharp rally this year. They advise investors to take a three to five year view if investing at this juncture.
“While the market appears to believe in a growth turn, it is far from pricing in a multi-year growth cycle, implying significant upside potential in the next three to five years. That said, the next few months may witness moderation in absolute returns and higher volatility,” Ridham Desai, managing director, Morgan Stanley India, said in a recent note.