There’s no stopping the bulls
Indices hit new highs; Sensex tops 55,000 mark
India’s benchmark indices hit new highs on Friday, capping another strong week, as investors’ risk appetite improved amid signs of US inflation peaking.
The Sensex rose 593.31 points, or 1.1 per cent, to close at 55,437, while the Nifty50 index advanced 165 points, or 1 per cent, to 16,529. Both indices added around 2 per cent each during the week after rallying more than 3 per cent in the last week.
Investors increased their equity wager on the hopes that the softening of inflation would enable the US Federal Reserve to delay the tapering of asset purchases. Strong buying interest in bluechip stocks such as Tata Consultancy Services (TCS), Reliance Industries (RIL), and HDFC Bank lifted the benchmark indices, even as the broader market faltered for a second straight week. The Nifty Midcap 100 and Nifty Smallcap 100 indices fell 1.23 per cent and 2.2 per cent, respectively, during the week.
European and US markets hit new highs during the week on the back of stronger-thanexpected economic data and forecast-beating corporate earnings. Asian markets, however, slipped due to concerns over the spread of the delta Covid-19 variant and China’s regulatory crackdown.
Experts said the domestic markets had managed to outperform their regional peers thanks to a pick-up in economic activity, moderation in inflation, and the government’s pledge to support growth. Data released on Thursday showed that India’s consumer price inflation had fallen to a three-month low of 5.6 per cent in July.
“The inflation data would be within the RBI’S comfort zone. It should help the central bank maintain its (easy) monetary policy stance in the near term. The equity market is likely to continue with its strong positive momentum as economic activities could pick up further pace with the lockdown measures getting relaxed,” said Siddhartha Khemka, head (retail research), Motilal Oswal Financial Services.
Experts said the selling by foreign portfolio investors (FPIS) seen during July had stopped, helping the markets make positive strides despite concerns about expensive valuations.
Overseas investors bought shares worth ~820 crore on Friday.
"FPIS appear to have changed their investment strategy. After selling equity worth ~11,308 crore in July, they have turned buyers this month. The outperformance of large-caps over mid and small-caps also indicates increased institutional participation. Since the markets are at record highs and valuations stretched, some profit-booking can’t be ruled out going forward,” said VK Vijayakumar, chief investment strategist at Geojit Financial Services.
The latest positive global sentiment has helped the markets shrug off the underwhelming June quarter results, earnings downgrades, and the possibility of further downgrades.
According to Bloomberg data, only 18 of the 47 Nifty companies that have reported the June quarter results have beat analysts’ estimates, while 27 trailed the consensus.
“Nifty FY22E consensus earnings estimates have been pruned 4.2 per cent in the past month on margin pressures and mild Covid wave Ii-led impact. Further, as the wave II economy unlock is unfurling slowly versus that in wave I, we do not envision upgrades in the near future. However, rising Covid incidences and R value in Kerala and a few other states may set off mild downgrade risks to earnings if Covid worsens nationwide,” said Elara Capital in a note this week.
On a year-to-date basis, the Sensex and the Nifty have gained 15.8 per cent and 17.9 per cent, respectively. The Nifty Midcap 100 is up 32 per cent, while the Nifty Smallcap 100 has surged 42 per cent this year.
The Nifty currently trades at 23 and 20 times its estimated earnings for FY22 and FY23, respectively. These valuations — higher compared to historical levels — are underpinned by expectations of strong earnings growth for the next two years.
Earnings disappointment and the tapering of the US bond buying programme remain key risks for the market in the medium term.