Sensex closes at record level but celebrations muted

Optimists cheered proposed roadmap to bring down consumer inflation

The BSE Sensex closed at a record high on Wednesday, amid muted fanfare as investors were divided over the impact of a Reserve Bank of India (RBI) committee’s recommendation to use consumer inflation as the anchor for monetary policy.  While optimists cheered the proposed road map to bring down consumer inflation, critics felt moving to the new anchor would lead to policy rates staying higher for a longer period.

Market participants said higher interest rates have partly hampered fresh investments and hurt companies’ balance sheets.

The Sensex closed at record highs thanks to a spurt later in the day after swinging between gains and losses early in trading. The Sensex rose 86.55 points or 0.41 per cent to end at 21,337.67, surpassing its previous record close of 21,326.42 on December 9. The index is below its all-time high of 21,483.74. The NSE’s Nifty gained 25.15 points or 0.4 per cent to close at 6,338.95 on Thursday.

“Market sentiment remains positive because most of the economic indicators are showing signs of improvement,” said Rajesh Cheruvu, chief investment officer, Royal Bank of Scotland Private Banking India.

Cheruvu does not expect a sentiment to be affected unless foreign institutional inflows (FII) slowdown. FIIs net-bought shares worth Rs 279 crore on Wednesday, according to provisional data, after pumping in close to Rs 2,440 crore so far in January.

Expected FII flows coupled with the buzz surrounding the national elections in April could drive up the market further, said analysts. Cheruvu expects the Nifty to touch 6,600 over the next couple of months before the elections.

Sandip Sabharwal, an independent market analyst, said the likely decline in inflation will be the next trigger for the market.

Bank shares were mixed on Wednesday as a section of Dalal Street worried that the RBI panel’s recommendations on the health of some lenders.