Sensex logs best monthly gain since March 2016
Mumbai: The BSE’s benchmark Sensex logged a 6.19% gain in October—its best monthly rise in 19 months—as foreign investors took a break from selling Indian equities and domestic investors continued buying, albeit at a slower pace.
On Tuesday, the 30-share Sensex closed 0.16%, or 53.03 points, lower at 33,213.13 points. The National Stock Exchange’s 50-share Nifty closed 0.27%, or 28.35 points, lower at 10,335.30 points.
They had touched a record high of 33,340.17 and 10,384.50 points respectively on Monday, and are down 0.4% and 0.47% since then.
Sensex and Nifty rose 6.17% and 5.59% respectively in October, posting their highest monthly gains since March 2016 and June 2017.
Sensex was also the second-best performing key emerging market equity index, trailing South Africa’s FTSE/JSE Africa Top40 Tradeable Index.
Eight of the 30 Sensex stocks—Maruti Suzuki India Ltd, Bajaj Auto Ltd, Adani Ports & Special Economic Zone Ltd, State Bank of India, Reliance Industries Ltd, Hindustan Unilever Ltd, HDFC Bank Ltd and Kotak Mahindra Bank Ltd—hit record highs in October.
“The early part of the rally, we saw global liquidity and markets started to move up. We started to pause a bit, and then we had the bank recapitalisation, which drove the market up,” said Andrew Holland, chief executive officer of Avendus Capital Alternate Strategies Pvt. Ltd.
The government announced a Rs2.11 trillion recapitalisation package this month for public sector banks that are weighed down by bad loans.
“All markets are up this week. We will continue on this merry go round of liquidity, until we fall off it,” said Holland.
Foreign institutional investors (FIIs) bought a net of $304 million of Indian shares in October, a breather after two months of selling of $1.7 billion in August and September.
While buying by domestic institutional investors (DIIs) slowed, they still invested a net of Rs10,090 crore in the month. That was less than half the amount deployed in September.
On the sectoral front, the BSE telecom, energy and PSU indices rose the most this month, delivering gains of 19.54%, 14.68% and 12.96% respectively.
NSE’s Nifty PSU Bank index surged 25.7%, the most since March 2014, cheering the government’s recapitalisation plan.
Holland cautioned that domestic factors such as a possible widening of the fiscal deficit, chances that the goods and services tax may not be revenue-neutral, and stretched valuations of Indian stocks could weigh on investors.
Market participants are divided on the market trajectory from here on.
“ I don’t see much upside near term (in the Indian market), because valuation is quite high compared to earnings growth,” said Hertta Alava, director of emerging market funds at FIM Asset Management Ltd at Helsinki, Finland.
“I have a neutral view on India. Generally I feel that emerging markets could take a pause now after such a strong performance,” Alava said in an e-mail response. FIM manages €2 billion of assets, of which €350 million is in emerging markets.
“Equity markets are anticipating earnings growth to recover at a robust pace and, given the current valuations, there is no margin for error on that front,” ICICI Securities Ltd said in a note on Monday.
“ Our 360-degree view of valuations below indicates that the odds are against high performance for stocks from current levels if growth belies expectations in the short term, which remains our base case given the weak investment cycle, slow export growth and recent slowdown seen in private consumption expenditure.”
Brokerages such as Goldman Sachs Group Inc. and Citigroup Inc. have raised their targets for benchmark indices, citing the bank recapitalisation programme, an infrastructure push and continued inflow of domestic savings into equities.
“I think we are all confused because of the strength of the market. Valuations are looking very rich, but flow is decent,” said Raamdeo Agrawal, joint managing director of Motilal Oswal Financial Services Ltd.
He pointed out that the primary market had taken off, and with the government going ahead with divestments from public sector companies, the supply of paper is picking up. The heat in terms of valuations is visible in the primary market as well, he warned.
“However, the downside is limited as liquidity support is very good. Lower interest rates have led to a structural shift in the savings scenario,” said Agrawal.
“News flow is good except that economy is not picking up, There are patches of growth, but it is not yet widespread,’ he added.