There seems to be no stopping the bulls. The Indian markets on Tuesday reached two milestones with the benchmark Sensex surpassing the 36,000-mark-the latest 1,000-point gain coming in just four trading sessions-and the Nifty 50 index ending above the 11,000 for the first time. Both the indices gained a per cent each after the International Monetary Fund (IMF) said India is set to regain the fastest-growing major economy tag in 2018-19. The broader market too participated in the rally with the BSE Midcap gaining 1.1 per cent. Foreign portfolio investors (FPIs) made their Rs 10-billion-plus daily purchase for a fifth day in a row. On Tuesday, FPIs bought shares worth equities worth Rs 12.3 billion, taking their monthly buying tally pass Rs 90 billion. Domestic institutions also purchased shares worth Rs 1.7 billion, provisional data from stock exchanges showed.
IMF in a report predicted the Indian economy to grow at 7.8 per cent and 7.4 per cent in FY20 and FY19, respectively. In contrast, the Indian economy is clock 6.7 per cent growth in FY18.
Market participants say buoyancy in the Indian equities will continue in the near term thanks to easy globally liquidity. Domestically, revival in the economic growth and corporate earnings too will provide impetus for the market, they say.
"The economic cycle seems to have bottomed out and we are likely to see an improvement in the macro-economic indicators going forward. We expect earnings to dramatically improve to a 15-20 per cent over the next two years as corporate earnings return to normal with the bad news already priced in.
This revival in the earnings could also see returning of FPI interest in Indian markets and build in $ 8-10 billion of net inflows in 2018," said Mahesh Nandurkar, India strategist, CLSA.
Banking stocks continue to be in the forefront of the rally as investors expect the lenders to benefit the most from revival in the economy. The sectoral index for banking stocks in the BSE gained 1.6 per cent on Tuesday. Shares of SBI, India's largest public sector lender, climbed 3.9 per cent - the highest for any Sensex constituent. ICICI Bank and Axis Bank shares closed three per cent and 1.3 per cent higher respectively. Tata Steel, ONGC and Coal India were among the other top gainers with each of them going up more than three per cent each.
According to market analysts, surging crude oil prices could be a headwind for the market over the next few months. Rising price of crude oil could shoot-up the inflation and widen the fiscal deficit. The crude oil has gained 25 per cent in the last one year and is currently trading close to $70 a barrel. The level is still lower compared to its previous high of $140 per barrel in 2014, however, analysts caution that the macro-economy could come under strain if oil price rise another $10 a barrel from current levels.
"Rising oil prices in the global markets puts lot of pressure on Indian economy. Whenever the prices go up, inflation shoots up and fiscal deficit also increases. The current oil prices are looking relatively expensive and in order to absorb the shock of rising oil prices, government may have to do a balancing act by reducing excise duties so that it doesn't impact the inflation," said Deven Choksey, managing director, KR Choksey Investment Managers.
Broader markets also face headwinds as stock prices in this space have risen sharply despite lackluster earnings. This has led to a surge in the valuations with the BSE mid and small-cap indices on the BSE currently commanding a price to earnings (p/e) multiple of 48 and 112 times respectively. After beating Sensex for four consecutive years in terms of returns, the broader markets are already showing signs of underperformance. While the Sensex has rallied more than six per cent during the year so far, the BSE mid and small-cap indices have only managed to go up by 1.4 per cent and 2.2 per cent respectively.
IMF in a report predicted the Indian economy to grow at 7.8 per cent and 7.4 per cent in FY20 and FY19, respectively. In contrast, the Indian economy is clock 6.7 per cent growth in FY18.
Market participants say buoyancy in the Indian equities will continue in the near term thanks to easy globally liquidity. Domestically, revival in the economic growth and corporate earnings too will provide impetus for the market, they say.
"The economic cycle seems to have bottomed out and we are likely to see an improvement in the macro-economic indicators going forward. We expect earnings to dramatically improve to a 15-20 per cent over the next two years as corporate earnings return to normal with the bad news already priced in.
This revival in the earnings could also see returning of FPI interest in Indian markets and build in $ 8-10 billion of net inflows in 2018," said Mahesh Nandurkar, India strategist, CLSA.
Banking stocks continue to be in the forefront of the rally as investors expect the lenders to benefit the most from revival in the economy. The sectoral index for banking stocks in the BSE gained 1.6 per cent on Tuesday. Shares of SBI, India's largest public sector lender, climbed 3.9 per cent - the highest for any Sensex constituent. ICICI Bank and Axis Bank shares closed three per cent and 1.3 per cent higher respectively. Tata Steel, ONGC and Coal India were among the other top gainers with each of them going up more than three per cent each.
According to market analysts, surging crude oil prices could be a headwind for the market over the next few months. Rising price of crude oil could shoot-up the inflation and widen the fiscal deficit. The crude oil has gained 25 per cent in the last one year and is currently trading close to $70 a barrel. The level is still lower compared to its previous high of $140 per barrel in 2014, however, analysts caution that the macro-economy could come under strain if oil price rise another $10 a barrel from current levels.
"Rising oil prices in the global markets puts lot of pressure on Indian economy. Whenever the prices go up, inflation shoots up and fiscal deficit also increases. The current oil prices are looking relatively expensive and in order to absorb the shock of rising oil prices, government may have to do a balancing act by reducing excise duties so that it doesn't impact the inflation," said Deven Choksey, managing director, KR Choksey Investment Managers.
Broader markets also face headwinds as stock prices in this space have risen sharply despite lackluster earnings. This has led to a surge in the valuations with the BSE mid and small-cap indices on the BSE currently commanding a price to earnings (p/e) multiple of 48 and 112 times respectively. After beating Sensex for four consecutive years in terms of returns, the broader markets are already showing signs of underperformance. While the Sensex has rallied more than six per cent during the year so far, the BSE mid and small-cap indices have only managed to go up by 1.4 per cent and 2.2 per cent respectively.
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