The Nifty ended Mondays session at a 6,363.90 points, a lifetime high, putting on 1.66% over Fridays close after hitting 6,415.25 intra-day. The Sensex too closed at an all-time high of 21,326.42 points, up 1.57%, after touching 21,483.74 during the day. The rupee rose for a fifth straight session on hopes of more dollar inflows, ending at 61.14, up from 61.41 on Friday. It has gained 2% since last week.
Foreign institutional investors (FIIs), who have bought nearly $18.5 billion of equities since January, picked up $405 million worth of Indian shares on Monday their biggest single-day purchase since September 19, taking their month-to-date tally to nearly $800 million.
The outperformance of the Indian market could continue for some more time because the euphoria about local developments is for the time being, taking precedence over global concerns, observed Manishi Raychaudhuri, MD and head of equity research, BNP Paribas. Raychaudhuri pointed out that while concerns about the tapering of stimulus by the US Fed might crop up from time to time, the impact of such concerns on the Indian market could be far lower than that seen in mid-2013.
Nandan Chakraborty, MD, Institutional Equity Research, Axis Capital, felt the rally, driven by hopes of a stable government at the Centre, could be short-lived. Since the FIIs have been the dominant investors so far, the Feds moves on tapering would need to be watched, he said, adding the Congress response to its defeat whether it would spend more risking the fiscal deficit would also be closely tracked between now and the elections. He said apart from themes like the rural space and exports, the markets may start looking at early cyclicals.
The markets perceive BJPs prime ministerial candidate Narendra Modi as business-friendly and believe a BJP-led government will kickstart investments by removing bottlenecks and speeding up clearances.
Brokerage firm CLSA said the prospects of a stable government led by the BJP, after the 2014 general elections, are rising and the key factor is whether the BJP would be able to replicate its success in Uttar Pradesh, Maharashtra and Bihar. The Hong Kong-based brokerage said: The outcome of four state elections confirmed three key trends severe anti-Congress sentiments amongst voters, a pro-BJP/Modi wave visible but not all-pervasive, and voters prefer potential clean governance scores over populism.
Kotak Institutional Equities said it expects the process of economic reforms to continue, whether BJP or the Congress comes to absolute power. More important, we believe India has no options but to improve its fiscal position and investment climate. The alternative scenario is too horrible to contemplate.
The breadth of the market was strong, with 24 of 30 Sensex companies ending in the green. Mondays rally was largely fuelled by shares of banks and rate-sensitive companies. Barring BSE consumer durables index, all sectoral indices ended in the green. BSE Capital Goods index was the top gainer (3.14%), followed by Bank Nifty (2.95%), BSE Realty index (261%). Other sectors like BSE Power, BSE Oil & Gas, BSE Auto, and BSE Metals ended up 1-2%.
Japanese financial services firm Nomura cautioned that chasing the rally is not prudent. We expect market gains to be led by high-beta domestic cyclicals (banks and industrials) and expect defensives (consumer, pharmaceuticals, telecom and IT services) to underperform. Additionally, we think that chasing the rally is not prudent, as it remains to be seen how the incumbent party will react to its poor showing in the state election, Nomura said, while maintaining its March-end 2014 Sensex target of 22,000. ICICI Bank was once again the top gainer on Monday. Shares of the countrys largest private sector lender jumped 5.16% on the BSE, after rising more than 7% the previous week. Other gainers include Sesa Sterlite (5%), Larsen & Toubro (4.5%), Maruti Suzuki (3.85%), ONGC (3.48%), NTPC (2.85%), Hindaclo (2.74%), Mahindra & Mahindra (2.2%), HDFC Bank (2%), GAIL (1.8%), and State Bank of India (1.5%).On the losing side, Jindal Steel & Power was the biggest loser. The stock lost over 6% on Monday. Even broader markets continued to lag the front-line stocks, indicating the rally was temporary. BSE Mid-cap and Small-cap indices ended up 0.5% compared with more than 1.5% gains by Sensex.
According to UR Bhat, MD, Dalton Capital, the rally is a one-time event and is based on the expectation that BJPs performance will be replicated at the national level.
We already had a rally and today we are having another rally after the exit poll results proved true. Therefore, I think we are rallying three times for the same event. I think there is a limit up to which the sentiment can take the market higher. However on ground, fundamentals have not changed. After the euphoria ends, which could in the next 48 hours, market will come back to fundamentals, Bhat said.
Bhat also warned that bulk of the bull run in the last two-three months has happened on account of FII inflows and tapering could make our makers vulnerable. Based on the statistics coming out of the US, looks like taper can end very soon, probably even this month. So, as beneficiaries of the quantitative easing in the US, the reverse could also be true. Even if the BJP were to come with a good majority, it will take about six months to change the policies. Most of the FIIs portfolio are concentrated on IT, pharma, FMCG private sector banks. And these are exactly the stocks that are most vulnerable if FIIs pullout in a big way after tapering, Bhat concluded.