Mumbai: India’s 30-share bellwether index, the Sensex, closed at a 15-month high on Monday as investors rushed to buy stocks on signs of a revival of the monsoon and prospects of better economic growth. Analysts expect the upward trend to continue, if only in the short term.
A smaller-than-expected decline in non-farm payrolls in the US and significant improvement in the services sector, with the retail trade being the major contributor, also played a role in fuelling the rally.
Graphics: Sandeep Bhatnagar / Mint
The Sensex was in fact one among five Asian benchmark indices that closed at a year’s high on Monday.
The rest were the Thai Index 30, the Sri Lanka Colombo Index, the Taiex Taiwan Index and the Kuala Lumpur Composite Index.
US unemployment data was released on Friday after Indian markets closed.
The Sensex rose 327.20 points, or 2.1%, to close at 16,016.32 and the broader 50-share S&P CNX Nifty of the National Stock Exchange ended 102.50 points up at 4,782.90, recording its 15-month high.
Even though the valuation of Indian stocks is no longer cheap, fund managers do not see any immediate fall. According to them, the bull run will continue as long as there is no adverse news—in India or elsewhere.
“The way the market has broken the crucial psychological mark of 16,000, it is likely to continue the upward movement during the week,” said Ambareesh Baliga, vice-president and head of research at Karvy Stock Broking Ltd.
Domestic and institutional investors are expected to support further rallies, with mutual funds continuing to trim their cash positions and buy stocks.
“If the liquidity continues to be comfortable, the markets will sustain the bull run for awhile. Markets are moving on technical grounds, and therefore the upward resistance of the Sensex could be as high as 17,000,” said V.K. Sharma, head of research at Anagram Stock Broking.
“Foreign institutional investors (FIIs) have been selling stocks in the past few sessions. This shows that the rally is largely contributed by domestic institutions. It is expected to remain as long as the liquidity situation remains easy,” said Deepak Jasani, head of research, HDFC Securities Ltd.
FIIs, the mainstay of the Indian market, have bought stocks worth $8.12 billion (Rs39,626 crore) this year so far, net of sales. They sold a net $12.18 billion worth of stocks last year.
After most Asian markets gained on Monday, European markets too were seen trading in the green.
China’s Shanghai SE Composite Index was up 0.68%, Hong Kong’s Hang Seng Index rose 1.53% and Japan’s Nikkei 225 Index jumped 1.31%.
The US markets were closed Monday on account of the Labour Day holiday.
The Sensex has now risen 66.02% since January, the most after the benchmark indices of Russia, Indonesia and Sri Lanka. China’s market has risen 58.23% this year.
In the past fortnight, Indian markets have been cautious as reports of a weak monsoon trickled in but the late revival of the rains and the Central Statistical Organisation’s upward revision in the estimate of economic growth from 5.8% to 6.1% are restoring investor confidence.
Another contributing factor is the faster-than-expected rise in industrial output.
Rains made a shaky start this year with the driest June in 83 years and unusually scanty rain in early August, making the seasonal rainfall 23% below average till 2 September, the worst since 1972.
The revival of the monsoon could make up the deficit to some extent, said Medha Khole, director, Central Weather Observatory.
“People are bullish and risk appetite has returned,” said Anoop Bhaskar, head of equities at UTI Asset Management Co. Ltd, which managed about Rs74,000 crore worth of assets in August. “But the September quarter earnings will show whether this mood is justified.”
“The outlook is positive and every correction or dip is a buying opportunity,” said Hitesh Agarwal, head of research at Angel Broking Ltd, a Mumbai-based brokerage.
His company had always been optimistic about market movement even during the time when concerns were raised about monsoons impacting economic growth, Agarwal said.
The market is currently trading at around 18.81 times estimated earnings for fiscal 2010.
Some analysts such as Sharma of Anagram Stock Broking say that the run up is ahead of fundamentals, pointing to factors such as low credit growth of banks and lack of investment by corporations.
But there are not too many takers for Sharma’s argument. “The uptrend should continue, as investors look beyond FY10 earnings and are bullish on FY11 earnings growth,” said Manish Sonthalia, fund manager at local brokerage Motilal Oswal Securities Ltd.
Baliga of Karvy shared Sonthalia’s sentiment. “Though valuations are expensive at these levels, most of the investors have discounted the earnings growth of the second quarter and are looking at FY11-12 earnings. The cost cutting that happened in June may continue this quarter as well, and the corporate revenue growth may come under pressure,” Baliga said.
Not too many brokerages are expecting spectacular earnings by Indian firms in the September quarter.
Most fund managers say the market will rise beyond 16,000 and move towards 17,000 only after it consolidates at this level.
“Though the revival of monsoon has played an important role in improving sentiment, investors will gain confidence only if the market closes above the 16,000 mark for a few more sessions,” said Jasani of HDFC Securities.
Ashwin Ramarathinam and PTI contributed to this story.