Its been a week since the bulls took over the equity markets. The BSE Sensex hit another fresh high on Friday and the NSE Nifty 50 crossed 10,900 points for the first time as investors mood remained upbeat on positive news developments and earnings recovery.
The BSE Sensex closed at 35,511.58, up 251 points or 0.7 per cent and the NSE Nifty 50 index closed 78 points or 0.7 per cent higher at 10,894.70. It hit a new high of 10,906.85 intra-day.
For the week, the Sensex closed 2.7 per cent higher, while the Nifty gained 2 per cent.
The markets hit fresh records for three consecutive days this week. While on Wednesday, markets cheered government's move to cut additional borrowing target easing pressure over fiscal deficit and on Thursday, banking stocks charged the markets after reports indicated that the government was mulling increasing foreign investment limits in private lenders.
On Friday, investors mood was buoyant after the Goods and Service Tax (GST) Council reduced rates on 83 goods and services. Discussions have also begun on simpler filing of returns.
“Consensus on simplification of the return process by continuing with form 3B and uploading of only supplier invoice details is good news for the industry. It simply means lesser and easier compliances and resultant less compliance costs,” said Harpreet Singh, partner, indirect tax, KPMG India.
Apart from the news development, investors bets on corporate earnings improving is also driving the markets.
Many companies reported good earnings in the second quarter and the momentum is further seen picking up in the October-December quarter, particularly on a low-base. Analysts say its extremely crucial given the high equity market valuations.
“A meaningful growth in Q3 and Q4 FY18 earnings should provide fundamental strength to the current market rally. This is crucial for supporting investor sentiments given a single digit growth in corporate earnings in past few years and the recent state elections raising doubts regarding re-election of ruling party in 2019 general elections,” said Anand Radhakrishnan, chief investment officer – equity at Franklin Templeton Investments.
On Friday, shares of Adani Ports surged 4.7 per cent after several brokerages maintained their “buy” rating on the company's 20 per cent growth in quarterly earnings. Banking stocks continue to rally, with Yes Bank, ICICI Bank and State Bank of India, all rising over 2 per cent. Kotak Mahindra Bank, Axis Bank and HDFC were also up more than 1 per cent.
India's equity markets jumped 28 per cent in 2017 and are already up over 4 per cent in January alone.
Apart from earnings, India's economy is also expected to continue its recovery. Finance Minister Arun Jaitley is expected to give a huge thrust to the rural economy and job creation in the budget on February 1, which could further boost economy and consumption.
However, at current levels, not many stocks are cheap. Therefore, analysts recommend only looking at quality companies and investing in a staggered manner.
“From an investment perspective, diversified equity funds with core exposure to large caps and prudent risk-taking in mid/small cap space may be well positioned to capture medium to long term opportunity presented by the equity market. We suggest staggered investments to benefit from intermittent volatility,” said Franklin's Radhakrishnan.
