Indian equities climbed a new high on Monday, tracking positive global markets.
The BSE Sensex
closed at 31,715 for the first time, a gain of 355 points or 1.13 per cent. The National Stock Exchange’s (NSE’s) Nifty, which resumed trading at 12:30 pm after a technical glitch disrupted trade, settled at a fresh high of 9,771, up 105 points.
The rally was led by information technology (IT) stocks, which saw some short covering after the regulator on Friday banned holders of participatory notes from taking unhedged exposure in equities and said existing bets must be liquidated by 2020.
Asia traded with gains on Monday, buoyed by the Friday rally in US equities after that country’s jobs report beat earlier estimates and Chinese inflation data came in line with forecasts.
“The underlying sentiment seems bullish as reforms such as the goods and services tax and Real Estate (Regulation and Development) Act have given a lot of confidence to institutional investors. Further, we are seeing domestic money move away from physical assets like real estate and gold into financial assets, a positive sign,” said Nirmal Jain, chairman, IIFL. Foreign and domestic institutional funds purchased $14 billion of Indian equities in 2017, helping the Sensex
gain 19 per cent in the year-till-date.
Earnings for the June quarter, Jain added, were likely to be a mixed bag. A stronger recovery in earnings growth was likely to take shape two quarters later.
Despite concerns on valuations, analysts believe the market is far from pricing in a multi-year growth cycle, implying significant upside potential over the next three to five years. “Evidence keeps building that we are entering a new growth cycle, in which earnings could compound annually at about 20 per cent for the coming five years. Valuations are not signalling excesses. Indian stocks
are attractive relative to US equities, local bonds and in line with history on both an absolute and a relative basis,” said Morgan Stanley India analyst Ridham Desai.
The current mid-cap valuations look stretched, he added. The brokerage’s sentiment indicators point to a tactical price or time correction but the bigger swings in domestic equities will be dictated by moves in global equities. “Correlations across stocks
have plummeted to a low, suggesting a big macro trade is in the offing. As the global bid on stocks
is intact, domestic ones will probably outperform, given India’s superior macro environment.”
Barring the fast-moving consumer goods index, all other sectoral indices
rose on Monday. The BSE
IT and BSE
advanced nearly 3 per cent and BSE
Telecom moved up nearly 4 per cent. As many as 28 of the 30 Sensex
components advanced. In the broader market, there were 1,540 advances and 1,112 declines.
“Such buoyancy ahead of the earnings season indicates market participants are anticipating higher levels. Our position target of 10,000 in the Nifty
is intact but finding trades at the current level requires extra effort. For fresh trades, we suggest waiting for some consolidation or dip in stocks
and preferring hedged positions,” said Jayant Manglik, president, retail distribution, Religare Securities.