The BSE Sensex topped 44,500 and the NSE Nifty 50 index climbed above the 13,000 level for the first time on the back of huge inflows by foreign institutional investors and as positive developments around COVID-19 vaccine improved the prospects of a strong economic rebound.
On Tuesday, the BSE Sensex rose 446 points or 1.01 per cent to close at 44,523.02 level. It hit a record high of 44,601.63 in intra-day trading. Similarly, the NSE Nifty 50 index hit a life high of 13,079.10 before ending the session at 13,055.15, up 129 points or 1 per cent.
Recent economic indicators like automobile wholesales, Goods and Services Tax collections, industrial production and the purchasing managers index have all raised hopes that the economy, which was hit hard by the COVID-19 pandemic and the lockdown that was enforced between April-June, is now on the recovery path.
The investor enthusiasm has got a further boost with positive news coming on the vaccine front. On Monday, pharma company AstraZeneca, which is developing a COVID-19 vaccine in association with the Oxford University, said test results showed vaccine efficacy of up to 90 per cent. While preliminary tests of potential COVID-19 vaccines from other drug makers like Pfizer and Moderna too have showed a very high efficiency, the Oxford COVID vaccine is of particularly importance for India, as it will also be manufactured here by the Serum Institute.
“Indian economy is recovering well...With the road map for vaccination clearing, the economy will be back to full steam in 2021. The prospects ahead look quite encouraging as demand across sectors has started to look promising,” said B Gopakumar, MD and CEO of Axis Securities.
A major reason fuelling the market rally is a surge in FII flows. So far in November, FIIs have pumped in Rs 53,167 crore in India’s equity markets, which is the highest monthly figure so far this year, driving the total equity inflows in 2020 to Rs 101,055 crore. Foreign institutional investors who were siting on the sidelines in the wake of the elections are now deploying their funds in a big way, with the US election uncertainty reducing and Joe Biden-led Democrats increasingly certain to form the next government, say analysts.
In his recent capital market update, Jitendra Gohil, head of India equity research at Credit Suisse also said that improved global sentiment, coupled with a faster-than-expected economic recovery in the domestic market helped Indian equities outperform global peers.
Banking stocks were the major gainers on Tuesday, with Axis Bank, HDFC Bank, State Bank and ICICI Bank gaining 2 per cent to 4 per cent. Hindustan Unilever, ITC, Larsen & Toubro, Bajaj Finserv, Asian Paints and Sun Pharma were among the other major bluechip stock movers.
Vinod Nair, head of research at Geojit Financial Services feels it could be a good time for investors to start booking some profits at this juncture.
“We should be cautious on the market in the short-term and start looking into profit booking at least where returns are decent. One of the main reason for the markets rally is the inflows from FIIs and to sustain that will be very difficult. If there is some correction in December or January, investors could then add more to equities,” he said.
Markets have seen a sustained recovery since the end of March, which was largely driven by large cap companies. Off-late though, the midcaps and smallcap stocks have started to outperform broader markets as well. Nair, though, remains skeptical if the rally in mid and smallcaps will sustain.
“For mid and smallcaps to do well for long-term, the economy has to normalise. It may take another nine months for the economy to normalise. So, it is not a perfect time to assume that the outperformance will continue. Some money may have shifted from large caps to midcaps, but it could reverse soon. Take this opportunity and move out of mid and small caps,” he said.
Credit Suisse’s Gohil also feels the Nifty 50 index valuations are stretched, but expects it to remain elevated, due to the corporate earnings upgrades and the economic recovery.
“Globally too, ultra-loose monetary policies and expectations of further fiscal stimulus in the USA coupled with all-round earnings beat by corporates are propelling equity valuations toward all-time high levels. We expect valuations to remain elevated, however investors should favor cyclicals in portfolios and recovery plays that are currently undervalued, away from defensives that have already seen significant valuation expansion,” he said.
Gohil expects positive returns from equities in 6-9 months, largely driven by earnings upgrades.