Over 21 years after its launch in 1996, the National Stock Exchange Nifty Index on Tuesday briefly breached the historic 10,000 level for the first time ever in opening trade led by rally in banking, realty, metal and FMCG stocks.
The Nifty, which has been steadily gaining ground over the last one year amid high liquidity, rose 44.90 points to reach an all-time high of 10,011.30 points crossing its previous intra-day high of 9,982.05 yesterday. However, it fell quickly after valuation concerns. Finally, at the end of the trading session on Tuesday, the 50-issue Nifty closed lower by 1.85 points at 9,964.55.
The benchmark BSE Sensex too climbed 128.43 points, or 0.39 per cent, to trade at new record high of 32,374.30 intra-day, breaking its previous record high of 32,320.86 reached in yesterday’s trade. The Sensex finally closed at 32,228.27 down by 17.60 points.
The market has been driven by huge liquidity in the last one year. Foreign portfolio investors (FPIs) have invested Rs 55,957 crore in Indian stocks since January 2017. On the other hand, domestic retail investors have also been pumping money into the stock markets. Data available from the Association of Mutual Funds Industry (AMFI) shows that the MF industry had added about 7.75 lakh SIP (systematic investment plan) accounts each month on an average during the first quarter of FY 2017-18, with an average SIP size of about Rs 3,300 per SIP account.
During 2016-17, a total amount of Rs 43,921 crore was collected through SIP. Overall the asset under management under equity schemes surged by close to Rs 1,45,000 crore in 12 months as of June 2017. “Too much cash is chasing scrips these days. Investors should be cautious. Otherwise they will burn the fingers again. You can’t blindly follow FPIs or domestic funds,” said veteran BSE broker Pawan Dharnidharka.
“Markets made a historical day by touching 10,000 supported by better earnings from blue-chip and strong liquidity. However, profit booking at higher levels pulled the market to mild correction due to psychological effect, muted Q1 results for Midcaps and awaiting Wednesday’s US FED monetary policy meet,” said Vinod Nair, head of research at Geojit Financial Services. After Nifty’s launch in April 1996, the index took 21 years to rise from 1,000 to 10,000, showing a compounded annual growth rate of 11.6 per cent per annum.
Since the start of the year, the benchmark Sensex and Nifty indices have gained around 20 per cent as foreign institutional investors pumped in $8.7 billion and domestic institutions bought shares for around Rs 24,500 crore. “While the journey in year 2017 from 9,000 to 10,000, took just four months, the index first hit 9,000 way back in March 2015, following an RBI rate cut. We also witnessed a Budget day low of 6,826 on February 29, 2016. So, we’ve seen a great comeback by equities as an asset class, gaining 47 per cent in the last 17 months,” said Amar Ambani, head of research at IIFL Wealth Management.
The big question is: Will the rally continue? Is the market in an overbought position?
Ambani said this uptrend of the indices may continue. “After initial disruption caused by the newly implemented GST, we expect corporate earnings to revive significantly in FY19. Among risks, near term challenge will be to manage geo-political stand-offs and a longer term concern would be to improve jobs within our country given the huge manpower,” said Ambani.
According to brokers, the trading sentiments on Tuesday were strengthened by expectations of more capital inflows and a rate cut by the Reserve Bank of India at its meeting early next month.
A section of the market has also raised red flag over the sustained rally in the market. “One should not get carried away in believing that this run-up would continue for good. For the first time this year the market looks overbought technically and hence could shed some weight in the near term. If this happens it would be a healthy outcome. We see signification resistance around the 10000-10100 mark and do not think the market is ready to get past this hurdle in the current attempt,” said Gautam Shah, associate director at JM Financial Services.
“Normally retail investors rush to buy stocks when the valuation is at the peak. They hold the baby when big institutional investors dump the stocks,” said Dharnidharka who witnessed the boom and crash in 1991, 1997, 2001 and 2008-09. “We hope history is not repeated,” he said.