India’s key benchmark index raced to a new closing high on Monday on investor hopes of another round of government stimulus measures and steady inflow from foreign institutional investors (FIIs).
The Sensex closed at 40,301.96, up 136.93 points. The 30-share index had closed at 40,267.62 on 3 June, then a record closing high.
The Nifty closed at 11,941.30, up 50.70 points or 0.43% on Monday.
Some of the positive factors, such as a decent earnings season so far, better-than-expected festival season sales, hopes of stimulus from the government and continued FII inflow helped improve sentiment, said Siddhartha Khemka, head of retail research at Motilal Oswal Financial Services Pvt. Ltd.
“On the global front as well , US markets were at an all-time high, European and Asian markets over a 6-month high on hopes of US-China phase 1 trade deal negotiation, strong US jobless data, and better-than-expected China PMI data. While the markets consolidate near their peak, the positive momentum should continue for a while," said Khemka.
FIIs have invested more than $2.06 billion in the last three sessions in domestic equity and bond markets. In the year so far, foreign investors have bought nearly $10.22 billion in Indian equities and $4.69 billion in debt.
Domestic institutional investors sold shares worth ₹692 crore in the last three sessions, but are net buyers in the year so far, investing ₹50,302.86 crore.
According to media reports, the government is discussing the abolition of the dividend distribution tax (DDT), a review of tax slabs, and a change in the holding period of assets to be eligible for tax savings.
The securities transaction tax and the tax on long-term capital gains above ₹1 lakh introduced in the 2018 budget are also said to be under review.
Despite the current euphoric investor sentiment, analysts feel that the current slowdown will persist.
In an analyses of “downturns" in the last two decades, Centrum Broking Ltd said that the current slowdown seems to be the most protracted and severe both in terms of time and its spread.
It said that the impact on both rural and urban demand has been unprecedented. The brokerage believes the September quarter to be the bottom and that it takes an average two-three quarters for an economy to normalize once government intervention starts.
Bank of America Merrill Lynch, meanwhile, has cut India’s FY20 growth forecast to 5.8% on still-high real lending rates and Diwali demand, which was relatively weaker than its estimates.
“Our BofAML India Activity Indicator is also pointing to the slowdown persisting for another quarter. While we do expect growth to bounce back to 6.9% by March, as base effects reverse, the bottoming is certainly getting deeper and longer," it said in a report on Monday.
The rupee closed marginally higher against the US dollar as foreign investors continue to buy in local equities and debt markets. Gains in Asian currencies amid optimism that China and US are moving closer towards an interim trade deal also improved sentiment.
The domestic currency closed at 70.77 a dollar, up 0.06% from Friday’s close of 70.81. The Indian unit opened at 70.61 a dollar and touched a high of 70.56—a level last seen on 30 September. The yield on the 10-year Indian government bond was 6.475%, compared with its previous close of 6.443%.