Sensex at record high at 37,000: What exactly is driving the stock markets' dream run?
Whether there is any euphoria or has any irrational exuberance crept into the market, or is the rise for real, is the question on the minds of investors, though it does not matter much for a positional trader.
Hitting record highs has become a habit for the stock market indices in the recent days. The benchmark BSE Sensex has hit record levels 7 days in the last 11 trading sessions, particularly over the last four sessions consecutively, including Thursday.
On Thursday it had crossed the 37,000-mark and hit a high of 37,061.62, before closing at 36,984.62, a rise of 0.34 percent. Whether there is any euphoria or has any irrational exuberance crept into the market, or is the rise for real, is the question on the minds of investors, though it does not matter much for a positional trader.
Until now, it appeared that it is US President Donald Trump who is driving the global markets crazy, either way, over the last few days, if not months, as part of promoting his ‘protectionist’ agenda
The latest boost to the market sentiment has come from two factors – domestically, the defeat of the no-confidence motion against the Narendra Modi-led government piloted by the Telugu Desam Party (TDP) in Parliament helped soothe the nerves of the market, and globally, Trump reaching an agreement with the European Commission President Jean-Claude Juncker had cleared the clouds on a transatlantic trade war that were looming last week.
But the data that is coming out on the domestic front is not indicating a favourable situation for the market to gloat about. The annual wholesale inflation (provisional) has jumped up from 4.43 percent in May to 5.77 percent in June, increasing the inflation risks to policy interest rates in the coming months.
Recently, the International Monetary Fund (IMF) flagged growing risks to India’s growth while reducing growth forecast by 10 basis points to 7.3 percent for the current year and by 30 basis points to 7.5 percent for 2019. It cited faster-than-anticipated monetary tightening and higher crude prices while flagging increased risk of "worse outcomes" amid recent international trade tensions, globally. The IMF, however, has kept its forecasts for global growth for this calendar at 3.9 percent.
Even the global shocks from crude oil prices are far from over for India, which imports about 80 percent of its oil consumption. Though the crude prices have come off $80 per barrel it touched recently, the price has since dropped to about $73 per barrel. If the global crude prices stabilise at these levels, the government would be in a position to ward off severe stress on its finances to a great extent going forward given rising GST (Goods and Services Tax) collections.
However, the new record highs the indices have touched during the month were not accompanied by abnormal volatility and the rise can be termed ‘almost broad-based’. Though the index movements were not much percentage-wise, advances to declines ratio, which defines the depth of the market, was in the positive zone on Thursday, with advances at 49.94 percent against the declines of 44.89 percent, while 5.16 percent of stocks remained unchanged.
With the trade tensions receding and the US dollar softening after last week’s US-EU standoff, the rupee has stabilised backed by a rise in markets. However, further weakening of the currency cannot be totally ruled out at this juncture as the trade tensions are still looming over the horizon.
Even as the market has been touching new highs, foreign portfolio investors were seen booking profits sporadically keeping the domestic investors on their tenterhooks.
During the current calendar, Foreign Portfolio Investors (FPIs) have exited portfolio worth Rs 47,872 crore till June 2018, creating fears that they will continue to withdraw from the Indian market. However, the market indices reaching new peaks have kept their enthusiasm towards home markets under check. In July so far, their net investments are negative only to the tune of Rs 4 crore, an indication of their persistent interest in the market.
During the current month, Domestic Institutional Investors (DIIs) have pumped in a net of Rs 5,512 crore by 20 July, 2018, though they are not a match to the ferocity of FPIs by any measure.
The expectations of the market about the policies of the present government are also boosting the sentiment, adding to the above factors in keeping the market in a good stead from the current standpoint.
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