The benchmark indices fell for the third consecutive session on Friday. However, they still managed to cap their best two months since 2009. The Sensex ended 129 points, or 0.34 per cent, lower at 37,607, while the Nifty fell 28.7 points, or 0.26 per cent, to end at 11,073.
Both the Sensex and the Nifty have gained nearly 16 per cent in the two months ended July 31. The last time the indices posted bigger gains than this was in May 2009, following the re-election of the Manmohan Singh-led United Progressive Alliance (UPA) government.
Experts say aggressive stimulus measures announced by global central banks helped investors look beyond the worst economic outlook in more than 40 years, and the third-highest Covid-19 cases globally. “The global equity markets tailwind, aggressive liquidity influxes — both global and some domestic, a fall in rates and the early supply-side improvements…this mix can keep the markets up for a while and stay ‘disconnected’ with the economy,” said Aditya Narain, head of research at Edelweiss in note. The brokerage is cautious on the markets, with a Nifty target of 10,800 for June 2021. Besides global liquidity support, some believe the entrance of new investors into equity markets has helped drive up stock prices.
“Many first-time investors moving savings into stocks helped move the market up, together with international flows over the past two months. We see August as a bad month, where the excess froth of the past couple of months could be corrected,” said Umesh Mehta, head of research at Samco Securities.
Also, encouraging early-bird results have supported stock prices. Of the 26 firms that announced results so far, 18 beat or matched estimates. Reliance Industries on Thursday posted profit that beat estimates, and its profit before tax fell 6 per cent after stripping out a one-time gain. It’s stock ended 1.98 per cent up on Friday — the most among Sensex components. The stock, however, has gained 41 per cent in the past two months.
After posting back-to-back months of strong gains, however, the markets seem to have triggered technical indicators that some investors read as a signal to sell. “The Nifty has posted a red weekly candle after rallying for six weeks, consecutively. The index is overbought in the short term and may witness profit-booking led by weakness in heavyweights such as Reliance Industries and HDFC Bank. The trend for the Bank Nifty index is already weak and consolidating in a range since the past four weeks,” said a note by Samco Securities.
In the past two months, the IT index has gained the most at 29 per cent, followed by a gauge for performance of state-owned banks. Meanwhile, the consumer goods and realty indices have lagged the benchmark with gains of 5.4 per cent and 11.6 per cent, respectively.
Foreign portfolio investors have poured in over Rs 26,000 crore since June 1, while mutual funds (MFs) have sold shares worth nearly Rs 8,200 crore. The selling by MFs comes amid moderation in flows into equity schemes.
With Bloomberg inputs