Sensex hits all-time high: What is powering the bulls?

The Sensex has shot up by 22.85 per cent from its 52-week low of 51,632.85 recorded on June 23, 2022.

Why are markets bullish?

Retail inflation has eased to 4.25 per cent in May and the RBI opted for a pause in the last two monetary policies, indicating that the central bank may be through with its rate hike cycle.

Globally markets are bullish, even though global growth is sluggish. The reason for this bullish trend is that the US recession, which markets had discounted last year, didn’t happen and there are indications that the US might avoid a recession. So, markets are correcting the wrong discounting of last year.

“Benchmark indices touched new highs on the back of sustained increase in capital expenditure by the government coupled with rising manufacturing PMI index. Despite increase in interest rates we are witnessing rising credit demand and India Inc today can boast of much better balance sheets than ever before,” said S Ranganathan, Head of Research at LKP Securities.

On the other hand, foreign portfolio investors (FPIs) have started buying in Indian markets. FPIs have bought stocks worth Rs 18,343 crore in June so far.

“In India there is big action in mid and small-caps and this is likely to continue. Even though valuations are rich, there is value in large-cap banking stocks which have corrected. Leading indicators, particularly the sustaining credit growth, augur well for high quality banking stocks,” said VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services.

What can be some of the worries ahead?

Analysts said it won’t be a smooth one-way rally, with intermittent hiccups such as interest rate uncertainty, global economic slowdown and inflation woes likely to play spoilsport in the near to medium term. Another big worry for the bulls is the dismal performance of the monsoon, which has shown deficiency of more than 50 per cent till June 15.

Also, all eyes will be on US Fed chair Jerome Powell’s two-day Congressional testimony starting on Wednesday. These could potentially hint at a July hike given the Fed signalled the possibility of more rate increases later in the year if inflation remained an issue, said Siddhartha Khemka, Head – Retail Research, Motilal Oswal Financial Services Ltd.

While the Fed has indicated that it is not yet done with its interest rate hike for the year, other negatives like falling crude oil prices in view of a sluggish demand from China and other economies could make investors jittery going ahead, said an analyst.

If retail inflation inches up again in India, the RBI will be forced to step in again with rate hikes. CPI inflation is projected at 5.1 per cent for 2023-24, with Q1 at 4.6 per cent, Q2 at 5.2 per cent, Q3 at 5.4 per cent and Q4 at 5.2 per cent, according to the RBI.