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Indian stock markets today shrugged off China jitters to hit fresh highs with both Sensex and Nifty hitting record levels. Reliance Industries, India's most valuable company, rose 3%. The overall sentiment was lifted by a sharp fall in oil prices and expectations of Indian economy continuing to chug along at a decent pace despite global headwinds. At day's highs, the broader Nifty50 index hit a fresh high of 18,611 while Sensex rose to 62,686, up nearly 400 points.

The gains in Indian equities defied the weakness in other Asian markets, which fell as protests in major Chinese cities against strict zero-COVID curbs raised concerns about the growth implications for the world's second-largest economy. The prospect of a hit to demand in the world's biggest crude importer hammered oil prices which fell to lowest levels of this year.

In the short term, traders will be looking ahead to US jobs data due this week, which could provide clues about the Fed's next moves. Fed boss Jerome Powell will also be speaking at an event later this week.

"There are two positives which can impart resilience to the ongoing rally in the market: One, the steady decline in crude which has taken Brent crude to below $82. Two, the steady FPI buying ( 31630 crores so far in November) particularly in fundamentally strong segments like financials, IT, autos and capital goods. These positives notwithstanding markets are likely to be in wait and watch mode for the Fed chief’s speech on Wednesday. Any hawkish statements from Powel will be negative since markets have factored in slower rate hikes taking the terminal rate around 5%. The high futures premium is indicative of the underlying bullishness in the market." said Dr. V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services.

The broader markets - BSE midcap and smallcap indices - also posted decent gains today but both the indices are still some distance away from recent highs.

India's GDP data is also due on Wednesday. A Reuters poll showed the Indian economy likely returned to a more normal 6.2% annual growth rate in the quarter ended September, after clocking double-digit expansion in the previous quarter.

“The Indian equity market has managed to attract foreign investors and the credit goes to the steady performance of the Indian economy despite the global headwinds of the ongoing military war, fluctuating fed rates and fear of recession knocking on the door. A few other factors that are driving the India growth story and attracting foreign investments are the highest ever tax collection numbers, upward shift in domestic consumption due to the festive season, reporting of positive corporate earnings, strong valuations, successful IPOs, government efforts in announcing regulations for attracting offshore investors for capital infusion in start-ups, angel funds and promoting digitisation, innovation and the technology space," said Manoj Purohit, Partner & Leader – Financial Services Tax, BDO India.

"Other emerging markets such as Brazil, Indonesia, Taiwan etc. are also seeing a similar trend in terms of foreign cash flows. We expect the aggressiveness in pumping cash into equities to continue in the coming months as well. With the slowing down on hiking of rates, inflation under control and the economy being well incubated, we see no reason for India to not be in the leading position and most preferred choice by the international community, not only for equity but also other markets in the long term," he added.

Going ahead, many analysts expect the momentum in Indian markets to remain strong.

“Strong domestic macros, robust earnings growth and sharp correction in oil prices is big positive for Indian equities. Going ahead too we expect the momentum to remain strong with expectation of Nifty earnings CAGR of 17% over next 2 years. The oil prices have corrected and fallen to just above $80 bbl which is positive for our oil import dependent economy. Even the wholesale and the retail inflation has cooled off and is showing signs of peaking out," said Ajay Menon, MD & CEO, Broking & Distribution, Motilal Oswal Financial Services Ltd.

"Now with Fed’s commentary on slowing down the pace of rate hike has given boost to the global sentiments which along with strong domestic fundamentals is proving to be a boom for the Indian equities. At the same time, the festive season this year witnessed a buoyant demand – being the first one without any restrictions post two years of covid. The buoyancy in demand is expected to continue with the onset of marriage season. Apart from this the bank credit continues to grow in late teens over last few months and is expected to continue this uptrend with the pickup in capex from H2. India is entering big capex upcycle which would provide leg-up to the overall economy," he said.

S&P Global Ratings today in its quarterly economic update for Asia-Pacific, S&P said in some countries the domestic demand recovery from COVID has further to go and this should support growth next year in India. S&P Global Ratings on Monday cut India's economic growth forecast for current fiscal year to 7%, but said the domestic demand-led economy will be less impacted by the global slowdown. 

Morgan Stanley Outlook on Sensex for 2023

Morgan Stanley sees a 10% upside for Sensex from current levels. “An up-trending profit cycle, a likely peak in short rates in 1Q2023 and ebbing global macro risks relative to 2022 make the case for absolute upside to Indian stocks. That said, India's relative gains may take a breather in 2023," the brokerage said. 

Downside risks: “A deep and broad US recession leading to slowing earnings and a consequent rise in the USD could pressure the BoP; a resurgence in oil and fertilizer prices due to supply outages could cause elevated inflation and higher rates; equity returns could correlate highly with a weak global equity market," the brokerage added. 

(With Agency Inputs)

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