Mumbai: Indian stocks hit a record high, with the benchmark Sensex breaching the 34,000-point mark for the first time on Tuesday, spurred by abundant liquidity support and positive investor sentiment as the year draws to a close.

The BSE Sensex rose 0.21% to end trading at a new high of 34,010.61 points while the National Stock Exchange’s Nifty gained 0.37% to 10,531.50.

Most global markets were flat as trading thinned due to year-end holidays in several regions of the world.

Markets are rallying on positive sentiment driven by hopes of a revival in quarterly corporate earnings and a favourable budget, said Gaurang Shah, head investment strategist at Geojit Financial Services Ltd. “Markets are expected to hit multiple highs in the year ahead."

Most analysts expects stocks to extend the rally in 2018. Corporate earnings are likely to revive strongly in the coming months due to a low base and an expected recovery in economic growth, said Hemang Jani, senior vice-president, advisory, at Sharekhan, a brokerage owned by BNP Paribas SA.

“Earnings of Sensex companies are expected to grow, aided by strong performance of automobiles, banking and energy sectors. Some of the consumer companies have reported encouraging Q2 numbers while management commentary indicates early signs of domestic demand revival. We don’t expect a large and significant scope for downgrades in the consensus estimates for FY18 and FY19," he added.

Disappointing earnings growth this year have raised concerns that stock valuations are expensive. Steep valuations have not deterred foreign institutional investors (FIIs) from pumping money into Indian equities. Year to date, FIIs have bought a net of $7.5 billion in Indian shares. They sold $1.3 billion in December. Domestic institutional investors have bought stocks worth Rs91,354.2 crore in 2017, including Rs8,662.28 crore in this month.

According to Motilal Oswal Securities Ltd, now that state election results have been declared, markets are expected to revert to fundamentals. “The second half of FY18 should see a sharp earnings recovery, led by low base of demonetization and signs of pick-up in rural consumption even as the macros have come off a bit with the rise in crude oil prices, retail inflation and 10-year bond yields," it said in a report on 19 December.

Markets have gained sharply this year, with benchmark indices rising 27-28% in 2017. MSCI Emerging Markets gained 32% and MSCI World was up 20% during the period.

ICICI Securities Ltd said in a note on 21 December that 2018 being a pre-general election year will have a significant bearing on sentiment in equity markets.

“It has been observed that benchmark indices have performed relatively well in a pre-election year. The index has generated negative returns during only three out of the nine occasions (33% times) in the past four decades," it added. Out of the three negative-return instances, two were during 1995 and 1998, when India confronted political instability, and the third was during the 2008 global financial crisis.

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