Equity markets in India continue to scale new peaks; the NSE Nifty touched 10,100 level on Thursday, its highest level ever, as fund flows remain strong. Some companies have reported better-than-expected corporate earnings and global markets remained firm after the US Federal Reserve kept interest rates on hold.
The 30-share BSE Sensex hit a intra-day high of 32,672.66, before slightly retreating. In afternoon trades, the Sensex was still up 175 points or 0.5 per cent at 32,557.63 points. Similarly, the NSE Nifty crossed 10,110 levels, before coming down slightly to 10,079.30, still up 59 points or 0.6 per cent.
Some short covering ahead of expiry of July futures and options contracts and the changing political equations in Bihar, which many say will strengthen the BJP and weaken the opposition ahead of 2019 parliamentary elections, also boosted market mood.
Select banks, consumer goods companies and auto stocks were among the gainers on Thursday.
So far this year, foreign institutional investors have bought Rs 56,279 crore worth Indian equity. Domestic institutional investors too have invested more than Rs 24,000 crore in the equity markets, on the back of strong retail inflows in mutual funds.
Some analysts remain bullish and expect the markets to continue to move up, given the available liquidity and government reforms.
“Markets have reached a new high...It is an affirmation of the strength of Indian economy, the structural reforms that are being implemented like the GST, insolvency and bankruptcy code and lastly the good monsoon which is expected to bring cheers to the rural economy,” said Arun Thukral, MD and CEO of Axis Securities.
Amar Ambani, head of research, IIFL Wealth Management, also remains bullish and expects corporate earnings to “revive significantly” in the next fiscal year, although he did flag-off near-term challenge to manage geo-political risks.
“I see good reason to expect this uptrend to continue. Continued preference towards India, buoyed by growth, demography, stable macros and a government with intent will attract foreign capital and a high earnings yield versus fixed income will draw in domestic money into equities,” said Ambani.
The Nifty50 currently trades at around 21 times FY2018 earnings per share expectations and some analysts are voicing concern over the valuations and advise investors to remain cautious.
“Celebrated new highs are also a warning bell for investors...Investors need to be extra cautious during times of euphoria,” said Jimeet Modi, CEO, Samco Securities.
“From a short-term perspective, the markets appear to be overheated and trading rich. A correction can't be ruled out at this juncture,” said Motilal Oswal, chairman of Motilal Oswal Financial Services.
Sameet Chavan, chief technical analyst at Angel Broking, said the brokerage has been advising some profit booking ever since the Nifty touched 9,700-odd levels.
“At this juncture, our strategy more or less remains the same as we would still avoid participating in it on the index front. We have been stating repeatedly to keep booking profits and avoiding fresh longs in the recent rally,” said Sameet Chavan, chief analyst at Angel Broking.
Meanwhile, UBS Securities' base case end-2017 Nifty target is 9,000, while even its upside target is 10,000, which suggests it doesn't see any big upmove from current levels.
“Risk-reward fundamentally is clearly unfavourable but we acknowledge that the retail flow can keep markets elevated despite the absence of a near-term growth recovery,” the global broking firm said.
Many brokerages say market movement ahead will be driven more by stock specific activity and views on sectors like healthcare remain bearish. Investors are being advised to put in money only from a longer term (3-5 year) horizon.
Kunj Bansal, CIO – Equity at Centrum Wealth Management, feels markets should consolidate around current levels as there haven't been too many positive surprises in the results season.
“While it's the index at five figure number, it is a virtuous cycle, which follows in terms of new investors getting carried away and getting exuberant; this is the only thing one should watch for,” said Bansal.
