Sensex, Nifty Scale All-Time Highs: Indian benchmark indices hit a record high on June 28 on the back of sustained strong inflows from foreign institutional investors, while the narrowing current account deficit boosted investor sentiment.
The benchmark Sensex hit a record high of 64,012.16 points, while the Nifty touched an all-time high of 19,003.20 points. At 1.30pm, Sensex was up 0.88 percent or 561 points to 63,977 points and the Nifty gained 0.94 percent or 177 points to 18,994.74.
The NSE Nifty 50 scaled a new high after 142 trading days. The average swing returns, from the recent lows to a new high, since 2018 stand at 32.8 per cent.
Historically, on an average the Nifty has spent around 363 days before scaling new peaks since the year 2000, shows data. This was largely due to a prolonged bear phase between January 2008 and March 2015.
Siddhartha Khemka, Head of Retail Research, Broking and Distribution at MOFSL, said: “After making several attempts in the past few days, the Nifty finally managed to cross its previous highs. Strong institutional flows, healthy macros and robust earnings growth drove the domestic market towards its new highs.”
Here are the Key Factors Fueling the Bull Run:
FII Buying
Foreign institutional investors pumped $10 billion into Indian equities in the June quarter – the biggest inflow since December 2020 – on the back of healthy macros and robust earnings growth, analysts said.
Mukesh Kochar, National Head – Wealth at AUM Capital Market, said: “India has emerged as one of the sweet spots as far as investment by FPIs is concerned.”
“We believe that these flows will continue as India should continue to attract FPIs money due to its advantage compared to its peer emerging market economies like China, Korea, or Taiwan. These economies have their own challenges like pollution, geo-political risk etc. A very small percentage of Indians are in the stock market or financial investors at this point in time. This number will keep on increasing and the kind of retail money that can come in the future is out of imagination. So by and large we are bullish over the long term. There are still huge pockets of opportunities in the market. But having said that, one should always know that the market is always volatile in the short term and small corrections are always expected. Investors should focus on asset allocation rather than timing the market and look for the bigger picture in the long term,” he added.
F&O Expiry
The upside breakout by indices made room for traders to cover short positions ahead of the expiry of the June derivative contract, which partly aided the rally in the market. So far, rollovers to the July series of Nifty 50 have been above the 3-month average and are largely on the long side, said analysts.
While in the Nifty 50, the rollovers were higher, they were lower in the Nifty Bank derivative series.
Reasonable Valuations
Sensex and Nifty one-year forward price earnings currently trade at 19.1x and 18.4x compared to its 10-year average of 18.2x and 17.5x, respectively. Analysts said the current valuations are reasonable.
What everyone wonders is that will the India rally continue. Strong macro data in the US has given room for the US Federal Reserve to resume its rate hike cycle in the next month after a pause. There are growing concern over the progress of monsoon as well in the country with El Niño coming up as a major disruption to weather conditions. Global geopolitical factors, too, are at play.
Analysts, however, sound largely confident about the strength in the rally. According to them, the rally in Indian equities is unlikely to be affected by a potential Fed hike or a deficient monsoon or geopolitical disruptions as the market has already factored them in.
“Superior earnings growth and persistent flows are the main pillars of this rally. We believe as long as these two cylinders are firing, our markets are likely to keep surpassing new highs and generate superior returns for investors who believe and keep faith in India’s growth story,” said Devarsh Vakil, Deputy Head of Retail Research at HDFC Securities.
RBIs Pause on Rate Hikes
The Reserve Bank of India has kept the key policy rates unchanged for the second time in the bi-monthly monetary review of the rate-setting panel on easing inflation. The move by the central bank helped improve the market sentiment.
Global Markets
Recent data revealed an unexpected strength in various sectors of the US economy, indicating resilience that pushed back the possibility of a recession. According to reports on Tuesday, there was a notable increase in the annual rate of new home purchases, surpassing expectations. Durable goods orders also exceeded estimates, and consumer confidence reached its highest level since the beginning of 2022. Housing prices in the US have experienced a consecutive monthly rise for the third month in a row. These developments depict a positive outlook for the US economy and suggest a delay in any imminent recession.
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