FIIs power markets to new highs

Seventh straight sessions of gains on the bourses; FII investment tops $12 billion in 2014

The benchmark indices - BSE Sensex and NSE Nifty - ended at new all-time highs on Wednesday, following seven straight sessions of gains on robust buying by foreign investors. Better-than-expected corporate earnings and supportive global markets aided investor sentiment.

The BSE Sensex on Wednesday gained 121 points, or 0.47 per cent, to close at 26,147.33, the broad-based National Stock Exchange's Nifty rose 27.9 points, or 0.36 per cent, to end at 7,795,75. The Sensex and the Nifty surpassed their previous closing all-time highs of 26,100 and 7,787, respectively, touched on July 7.

Technology stocks, led by Infosys and Tata Consultancy Services (TCS), were the biggest contributors to the market gains, followed by banks. Software exporters rose after Goldman Sachs upped its price target on key stocks in the sector.

Foreign institutional investors (FIIs) bought stocks worth Rs 652 crore on Wednesday, taking their seven-day buying tally to more than Rs 4,000 crore. Buoyed by such robust FII buying, the 30-share Sensex has gained more than 1,100 points in the past seven trading sessions, led by blue-chip stocks like Reliance Industries and ICICI Bank.

 

"The Indian market has been driven by improving risk appetite globally as well as a bottoming out of growth, and not just the change in government," wrote Neelkanth Mishra, managing director and India equity strategist, Credit Suisse in a note.

The Indian market had declined about five per cent between July 7 and July 14 after the Union Budget 2014-15 lacked any big reforms market was expecting but had managed to recover lost ground subsequently.

"While some in the market might be disappointed by the pace of change driven by the new government, the broader market is likely to still do well," Mishra wrote.

The Indian market is already one of the best-performing among major global markets, with a rise of about 25 per cent so far in 2014. The gains have come on the back of $12 billion worth of investment by FIIs during this period. Following the spectacular gains the benchmark Sensex's one-year forward valuations have touched nearly 16 times - one of the highest among emerging markets. The MSCI Emerging Markets Index trades at a multiple of around 11 times.

 

However, some analysts believe that the valuations are not yet expensive. "While Sensex has been trading at all-time highs, the valuation (P/E) ratio is not stretched," said Citibank in a report. The US-headquartered investment bank says even though valuations have risen, investors are now expecting earnings upgrades and equities still remain the 'most-preferred asset class.'

Technical analysts believe the benchmark Nifty could make an attempt to scale 8,000 levels in the near term.

Another global brokerage Goldman Sachs said it is "strategically bullish" on the Indian market and has assigned a one-year Nifty target of 8,600, about eight per cent higher than the current levels.

Goldman, however, is of the view further gains could be less sharp and more dependent on earnings and reform execution. It has also said high stock valuations compared to other markets in Asia provide for limited room.

Technical analysts like Kotak's Shrikant Chouhan believe the Nifty could swing as much as 150 points in the coming days. "Our advice is to be a trader between the range of 7,800 and 8,000 instead of investors with a medium-term view," said Chouhan, head of technical research at Kotak Securities.