Indian markets near new record highs

Sensex, Nifty climb over 1.5% each after US jobs data dims chance of rate hike in the US

Robust foreign inflows saw the benchmark Sensex stage its second 400-plus-point rally (1.6 per cent gain) in a week and took the Nifty 50 index within kissing distance of a record high. Overseas investors on Tuesday bought shares worth over Rs 1,430 crore ($215 million), taking their year to date inflow rally past the $6 billion-mark. The latest bout of buying comes amid weak US employment data released on Friday, which reduced the likelihood of an interest rate hike by the US Federal Reserve later this month.

The Sensex on Tuesday closed at 28,978, up 445.9 points, or 1.6 per cent, the Nifty ended at 8,943, gaining 133.4 points, or 1.5 per cent, just 0.6 per cent shy of its all-time high of 9,000 touched in March 2015. Both the bellwether indices registered their fresh 18-month highs, while the broader BSE Midcap and BSE 500 indices clocked new record highs.

The Sensex and the Nifty have now rallied over 26 per cent from their 2016 lows in February. On a year-to-date basis, Sensex is up close to 11 per cent amid sharp inflows from foreign investors.

Raamdeo Agrawal, joint managing director, Motilal Oswal Securities said the ongoing rally is a reassertion of positive macroeconomic fundamentals of Indian economy. "The current rally is broad-based. Shares of all the companies with high-growth and visibility of earnings have rallied irrespective of which sector they belong to," Agrawal said.

The gains on Tuesday were led by automobile and banking stocks. Shares of Tata Motors were the biggest gainers at 7.2 per cent, followed by Axis Bank and ICICI Bank, which rallied around six per cent and four per cent respectively.

Banking stocks have been at the forefront of the ongoing rally, with the BSE Bankex climbing 21 per cent in 2016.

"Investors took comfort in the low valuations of the banks during the start of the year. The price-to-book of banks, especially state-owned, had come down sharply as they increased provisions to clean up their books," said Deven Choksey, managing director, KR Choksey Investment Managers.

Most equity analysts have been highlighting the improvement in the country's macroeconomic and earnings outlook in notes to their clients.

"Improving economic growth supported by sustained reforms by the government, above-normal monsoon and benign interest rates can result in resilient earnings expectations," said Ravi Sundar Muthukrishnan, co-head of research at ICICI Securities in a recent note, while upping its 12-month Nifty target to 9,600 citing the positive environment.

Anish Damania, co-CEO, IDFC Securities in a note said "Most consumption indicators still look robust on year-on-year basis given strong personal credit growth, robust car sales and good monsoons after two years of drought."

Most global markets had rallied on Monday following the US jobs report when Indian markets were closed for a holiday.

According to Bloomberg, the Sensex currently trades at 16.6 times, while the BSE Midcap index is at 35 times its projected 12-month earnings. The valuation premium of India to MSCI Emerging Markets is at 30 per cent.