BackElections to influence market course
Sensex gains 9.2% in October, seen reaching a new high on Friday or in Sunday 'Muhurt' trading
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Mumbai: BSE’s benchmark equity index inched close to its record high on Thursday and traders expect the fireworks to continue on Dalal Street as trading enters Hindu calendar year Samvat 2070, with a caveat that the market outlook till the next Samvat will largely depend on the outcome of the general election slated in May.
The 30-share Sensex rose to an intra-day high of 21,205.44 points, just short of its all-time high of 21,206.77, hit on 10 January 2008. The National Stock Exchange’s broader 50-share Nifty rose to 6,309.05 points, its highest since 9 November 2010.
The Sensex closed 0.62% higher at 21,164.52 points and the Nifty closed 0.76% higher at 6,299.15. Total turnover on both the bourses was ₹ 5.32 trillion, the highest ever.
With Thursday’s gain, the Sensex has risen 9.2% in October, its biggest monthly gain since January 2012.
Dealers expect markets to scale a new high on Friday or on the Muhurat trading session on Sunday.
“It (the rally) is all on the back of foreign flows. We seem to be ahead of fundamentals, but there is nothing stopping the money that is pouring in," said Gautam Trivedi, managing director and head of equities (India) at Religare Capital Markets Ltd.
Overseas investors were net buyers for a 19th consecutive session on Wednesday, bringing their total buying to nearly ₹ 16,000 crore in October.
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With one trading session still to go, the Sensex has clocked a gain of 14.6% for Samvat 2069, the best in last four Hindu calendar years, helped by strong inflows from foreign institutional investors (FIIs), who have pumped in $21.7 billion in Indian equities in Samvat 2069, the second highest after Samvat 2066.
Since January, overseas funds have bought a net $16 billion of local shares this year, the second highest after Japan among 10 Asian markets tracked by Bloomberg.
The rally in the market in Samvat 2069 has been a skewed one, and even among the Sensex stocks, one-third of them are still under water. While export-focused pharma and software companies gained the most as the local currency depreciated, infrastructure and real estate firms have been battered the most as the domestic economy languished.
In the current Samvat, BSE’s IT index has gained the most among sectoral indices, 55.2%, while its realty index and PSU (public sector undertaking) index have slumped 34.4% and 20.5%, respectively.
“Indian equities, after a lull of nearly five years, should break into new territory and have a good year," said Saumil Shah, managing director and head of equity sales trading at Bank of America Merrill Lynch. He expects the Sensex to rise to a 23,500-24,000 points range and give a return of 12-15% over the next one year.
Shah added that autos, infrastructure and capital goods should start to outperform, whereas pharma and IT (information technology) could see a slowdown in performance as investors rotate into laggards and underperformers of the last few years, away from the strong performers which are starting to look expensive on a relative basis.
“Though it is a historic moment, we have not seen leading stocks such as Reliance Industries participating this time. The sad part also is that retail participation is missing, and logically they haven’t gained anything in five years. Prosperity of share markets is not shared by the aam aadmi," said Deena Mehta, managing director of Asit C. Mehta Investment Intermediates Ltd.
“Elections will be key to decide the direction of the markets over next one year. A stable government at the Centre could be a big positive for the markets," added Mehta.
Asia’s third largest economy is also grappling with a difficult economic scenario, and the scene is unlikely to change any time soon.
India’s sluggish economy is likely to remain under pressure from weak domestic and foreign demand for some time, while uncertainty ahead of elections next year is expected to keep investors and businesses at bay, according to a Reuters poll earlier this week.
The Reuters poll of 24 economists showed gross domestic product will grow 4.7% in the fiscal year ending March 2014 after expanding 5% in the previous year, which was the weakest since fiscal year 2003. That consensus marks a sixth consecutive downgrade for this fiscal year, and is well below the 5.6% seen in the last poll in July.
Even as this forecast is better than that of many economies around the world, it is way off from the near double-digit growth seen in recent years in India, which is one of the key emerging economies.
“There is momentum in the market, but the euphoria is missing. When we saw these levels in the past, wealth was created. However, right now losses are being recuperated. Markets will hold on here, but the index (Sensex) will not shoot up drastically," said Ambareesh Baliga, managing partner of Edelweiss Global Wealth. “That said, we might see those stocks which have not yet participated in the rally—such as mid-cap and small-cap—catching up,"
BSE’s Mid-cap index and Small-cap index have fallen 9.1% and 18%, respectively, in this Hindu calendar year.
“The outlook for the market for Samvat 2070 is strictly dependent on the elections next year, and the leadership we see at the Centre," added Baliga.
Since January, the Sensex has rallied 9% and is the best performer among the so-called BRIC nations. It trades at 14.3 times projected 12-month profits, equal to its five-year average.
Bloomberg and Reuters contributed to this story.
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