The potent combination of easing geopolitical tensions, falling crude oil prices and abundant liquidity drove up Indian equities to newer highs on Tuesday.
In a sixth consecutive session of gains, the longest winning streak since July 24, India’s benchmark indices rallied in tune with the rest of the world, defying the few disbelievers.
At 26,420.67 points, the Sensex is now up 27.2% so far in 2014, making India the best-performing market globally, though by no means the cheapest. Blue-chips such as Maruti Suzuki, Tata Motors, M&M, Cipla, Sun Pharma and Hindustan Unilever have hit all-time highs in the last two days.
Foreign institutional investors (FIIs) remain the biggest buyers of stocks though local funds and insurance players have put in an appearance over the last few weeks; on Tuesday, however, domestic players sold $43 million worth of stocks even as FIIs shovelled in equities worth $93 million, according to provisional data on the exchanges. FIIs have now bought stocks worth $12.4 billion in 2014 but have invested a bigger $13.8 billion in rupee bonds.
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Except for January, FIIs have been net buyers every month this year, with the largest purchases in March of $3.7 billion.
Since July 24, domestic institutions have purchased stocks worth about $602 million more than that bought by FIIs of about $522 million.
While Prime Minister Narendra Modi’s Independence Day speech cheered the street which remains convinced reforms ill be rolled out. However, there are some brokerages that feel India is now expensive. “The positive is that some reforms have been put in place, but the impact on corporate earnings remains uncertain in terms of magnitude and timing,” strategists at HSBC Asia Pacific wrote. The report added, “We don’t think the time is right for us to change our neutral weighting on India. Valuations still look high and mutual funds are still very overweight the Indian stock market in our view.”
However, Nomura believes the market’s earnings multiple at 15.0 times is still not expensive. “To compare with historical averages, the market’s 5-year average multiple is 14.9x, 3-year average is 14.1x and average multiple during the high water mark year of 2010 is 15.9x,” the brokerage said in a recent research note.
On Tuesday, the Sensex closed at 26420 points, up 29.71 or 0.1%, while 50-share Nifty ended at a record 7897.5 points, up 23.25 or 0.3%. The rally was broad with the BSE Mid-cap and Small-cap indices putting on between 1.1% and 1.2%.
Asian and European markets also rose on Tuesday, driven by a decline in global crude oil prices on hopes of easing geopolitical tensions. Brent crude prices hovered near 14-month lows. Among Asian indices, the Kospi and Nikkei 225 rose the most on Tuesday, by 0.8% each. Among the major European indices, the FTSE 100, the CAC and the DAX were all trading higher by anywhere between 0.4% and 0.87% at 5.00 pm IST.
“Global liquidity is strong at the moment and that is what is driving emerging markets such as India. The easing of global crude oil prices is another positive for the Indian market,” said Andrew Holland, CEO, Ambit Investment Advisory.
Notably, central bankers including US Federal Reserve chair Janet Yellen and European Central Bank president Mario Draghi meet at Jackson Hole, Wyoming, to discuss their outlook for the economy and monetary policy on Thursday.
In 2014, India has beaten China’s Shanghai Composite (4.4%), Taiwan Taiex (6.8%) and South Korea’s Kospi (6.4%). Indonesia’s Jakarta Composite (25.9%) is the only Asian market to come anywhere close to India.
fe Bureau | The Financial Express