Today's Indian stock market rally was driven by a surge in banking stocks, especially PSBs
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Indian stock markets scaled new highs today, continuing their outperformance vis-a-vis other global markets. Market benchmark Sensex scaled the 59,000-mark for the first time while Nifty also hit an all-time peak of 17,644, as market sentiment remained bullish following the government's policy support measures for various sectors.
Sensex, the 30-share BSE index, climbed 417.96 points to settle at 59,141 while Nifty finished 0.6% higher at 17,629.50.
IndusInd Bank was the top gainer in the Sensex pack, surging 7.34%, followed by ITC, SBI, Reliance Industries, Kotak Bank, ICICI Bank and Axis Bank.
Banking stocks surged ahead of Finance Minister Nirmala Sitharaman's address to media where she is expected to give details on the creation of a government-funded 'bad bank'.
“Driven by reforms, the Indian market kept raising its bar and traded to new record highs. Today’s market rally was driven by strong buying in banking stocks especially in PSBs. The banking sector is expected to perform well in the coming days as the sector which failed to fairly participate in the ongoing rally due to fear over asset quality is gaining traction," said Vinod Nair, Head of Research at Geojit Financial Services.
S Ranganathan, Head of Research at LKP Securities, said, "Ahead of the operationalisation of the National Asset Reconstruction Company (NARCL), banks provided the much needed ammunition to the bulls to notch up record highs of 59K on the Sensex. The charge of the energised bulls took India's market capitalisation ahead of France as PSU banks lent the firepower."
Vodafone Idea notched its best day in over a year, jumping as much as 28.5% a day after the government approved a relief package for the telecom sector.
Banks with exposure to the cash-strapped firm also jumped. IDFC First Bank, Yes Bank and IndusInd Bank, which, as per Nomura, have exposure to Vodafone Idea at 3%, 2.4% and 1.7% of their loan books, respectively, climbed between 12.6% and 18.5%.
“The case for India’s equities remains structurally positive, we believe, amid resurgent consumer demand, manufacturing in a ‘China Plus One’ world, regulatory overhaul and the trajectory of monetary and fiscal policy," Gaurav Patankar and Nitin Chanduka, analysts with Bloomberg Intelligence, wrote in a note.
However, the sharp run-up in gains has increased the economy’s vulnerability to a market setback, they cautioned. The Nifty is now trading at 22.2 times estimated 12-month earnings, well above its five-year average of 18.5. By comparison, the MSCI Emerging Markets Index is trading at a multiple of 12.7, they said.
Nifty is up more than 25% so far this year while the MSCI Emerging Markets Index remains flat year-to-date.
Joseph Thomas, Head of Research, Emkay Wealth Management, says, “The PLI for the auto sector, greater clarity on the telecom dues with the moratorium announcement , and the likely announcement of guarantees for the Bad Bank soon, etc. were the factors that helped the markets rise higher. This was again supported by the muted third wave of the pandemic so far, and the aggressive vaccination program by the government, all have added to the positive sentiment. There is also comfort from the fact that with inflation moderating in August from higher levels registered in the last couple of months, the RBI persisting with its accommodative stance for longer time looks more probable."
The Union Cabinet, led by Prime Minister Narendra Modi, on Wednesday approved the Production Linked Incentive (PLI) scheme for the automobile and the drone industries with a budgetary outlay of ₹26,058 crore.
Technically, positive chart pattern of Nifty from smaller to larger timeframe could hint next possible upside target of 18K in the next 1-2 weeks, says Nagaraj Shetti, Technical Research Analyst, HDFC Securities. “Intraday corrections can't be ruled out in between. Immediate supports to be watched at 17470 levels."