Sensex closes at all-time high, but mood cautious

Ends Wednesday at 21,034 to beat previous record of 21,005 on Nov 5, 2010

 

The BSE Sensex on Wednesday closed at a record high, boosted mainly by uninterrupted foreign portfolio inflows on hopes the US Federal Reserve might keep its stimulus in place, at least till March. A firmer rupee, on the back of continued share purchases by foreigners, also aided sentiment.

The hopes turned out to be true late Wednesday evening, much after market hours, when the US Fed decided to maintain the status quo on its $85-billion-a-month bond-buying programme.

Earlier in the day, the Sensex rose 104.96 points, or 0.50 per cent, over its previous close, to 21,033.97. Its previous closing high was 21,004.96, on November 5, 2010. The Nifty, which gained 30.80 points, or 0.50 per cent, to close at 6,251.70, is still about 70 points away from its closing high of 63,12.45, reached on November 5, 2010. (NEW PEAK SCALED)

However, despite the Sensex touching a record closing level, brokers warned the market was vulnerable to surprises. The undertone remained tentative, with investors — especially domestic — continuing to cut their shareholdings on worries the current growth prospects did not justify current market valuations.

“Markets have run up a little too much. That is not in sync with the fundamentals,” said Saumil Shah, MD and head (equity sales trading for India), Bank of America Merrill Lynch. “Many investors (especially domestic) who are aware of the ground realities have been stumped by the way the markets have moved, despite economic growth issues and RBI maintaining its hawkish stance.”

Economists have been forecasting India’s gross domestic product growth at 4.7 per cent for 2013-14.

“From the economy’s perspective, the debate still remains whether it has bottomed out or not. There could be downside risks to growth, if the festive season demand does not pick up,” said Jitendra Sriram, director & head of global research, HSBC Securities and Capital Markets.

A key reason for the recent resilience in the market has been the gush of dollar flows from foreign institutional investors (FIIs). They net-bought shares worth Rs 1,016.77 crore on Wednesday, according to provisional data, extending their purchases to an 18th straight trading day. So far in 2013, they have pumped more than Rs 86,000 crore into Indian equities.

“I am cautiously optimistic about the market because of the strong liquidity; one cannot fight flows,” said Shah.

Now, with the Fed deciding not to taper its stimulus yet, the near-term FII flows into equities of emerging markets, including India, are likely to remain steady. The US central bank is widely expected to continue with the programme till the end of the first quarter (January-March) of 2014.

Analysts expect the Sensex and the Nifty to cross their highest levels, of 21,206.77 and 6,357.10, respectively — posted on January 8, 2008 — over the next few days.

“The stock market is holding up quite well on the delay in tapering of the Fed’s bond-purchase programme and the rupee’s stability,” said Sriram, adding: “What we need to watch out for is whether, in the next one-two months, there will be a boost in our forex (reserves), because flows will slow down once the tapering begins.”