Markets on the cusp of bull run

Sensex closes 486 points higher, Nifty above 8,050

Stock markets continued their strong run for the second consecutive day on Thursday amid rising expectations of a US Federal Reserve rate hike and stronger crude oil prices.

The 30-share Sensex reclaimed the 26,000-mark, first time since January, to close at 26,367, up 485 points or 1.8 per cent from the previous day’s closing. Similarly, the Nifty50 re-conquered the 8,000-mark, first time since November 2015, to end the day at 8,079, up 135 points or 1.7 per cent. After Thursday’s gains, both the benchmark indices were up 4 per cent in the last two trading sessions.

Upbeat March quarter data from Larsen & Toubro rekindled hopes of a recovery in the domestic economy. Shares of the engineering behemoth gained 14 per cent. The improved earnings came on the backdrop of a better-than-average monsoon forecast.

Despite the expiry of May derivative series, investors remained undeterred and continued with the buying spree on Thursday. Andrew Holland, chief executive officer of Ambit Investment Advisors, says, “Until Tuesday, markets were concerned about Fed rate hike and Brexit; but post comments from the Bank of England, nervousness and volatility surrounding Brexit were gone. Concerns about Fed rate hike have also receded as markets have seen there is not much fall in the commodity prices.”

 

Adding, “Also, good monsoon forecast aided the rally. So, a combination of global as well as local factors contributed to the current rally.”

Agrees Mrinal Singh, deputy chief investment officer of ICICI Prudential Mutual Fund: “Regional markets were up on global cues. The domestic market has rallied over the last two sessions largely on account of action in the derivative segment. Hopes of a good monsoon and likely pick up in growth are also helping sentiments.”

With Sensex galloping a thousand points in just two days, market participants say India is at the threshold of the next bull run. Deepak Mohoni, market strategist and founder of Trendwatch India, who coined the term Sensex, says, “There is very much of a global fire in stocks. Overall, it looks like a global bull market and India is moving in tandem. Our markets are getting into a bull market but with stops and starts. For the last one year, our markets were in a consolidation and I believe that phase is over now. We are very near to the all-time highs and in a bull market it does not take much to surpass those levels.”

Further, he adds, “Almost all the pessimism is built in the prices, markets have discounted Fed’s expected rate hike and global economies have improved reasonably. Indian economy is better placed compared with the rest of the world and a lot of money, sitting in the sidelines in other countries, may find place in Indian stocks.”

Meanwhile, riding on optimism, foreign institutional investors (FIIs) bought shares worth Rs 581crore as per the provisional data from stock exchanges. With this strong buying, FIIs have pumped nearly Rs 1,100 crore in Indian shares in the last two days.

“The corporate earnings for Q4 FY16 were much better than the previous quarters and there are possibilities that PSU banks (which have earned bad name in recent quarters) may lead the next bull run,” says Mohoni.

Crude oil touched seven-month high of $50 a barrel on Thursday as the supply glut showed signs of easing. Sudden outages in Canada, Nigeria, and Libya also helped the oil prices climb up. Brent crude advanced 51 cents to $50.05 as US crude inventories showed signs of retreat.

Holland says, “The oil prices would consolidate at this level unless Iran decides to freeze its output production, which I don’t see them doing. So the price band $45-$50 per barrel is where the supply and demand meet each other.”

Oil and Natural Gas Corporation (ONGC) surged 3 per cent on the Sensex as it revealed its Q4 numbers. The country’s biggest state-run oil explorer reported a rise of 12 per cent in net profit in fourth quarter. Net profit on a standalone basis was Rs 4,416 crore during March quarter, compared with Rs 3,935 crore a year earlier. State Bank of India (SBI) gained 4.9 per cent, followed by BHEL (4.73 per cent), Axis Bank (3.35 per cent) and ICICI Bank (2.67 per cent). Among the losers were Cipla, NTPC and Sun Pharmaceuticals which declined between 0.5 per cent and 1 per cent.

“The momentum currently is positive for the markets. After a bit of an upswing, there will be consolidation in the markets,” says Holland.