India may be an expensive market but foreign investors are willing to buy into it. Convinced the BJP-led NDA government will deliver on reforms in an economy that’s benefiting from lower crude oil prices, foreign institutional investors (FIIs) drove up Indian benchmark indices to new lifetime highs on Wednesday with the Nifty edging past the 8,400-point mark. The Sensex and Nifty have outperformed all major world indices so far in 2014 with dollar gains of 33% in a global rally fuelled by an abundance of liquidity resulting from accommodative policies of central banks.
With purchases of of a provisional $75 million on Wednesday, foreign funds have now run up a tab for the year of a shade above$15 billion. Investors believe the government will continue to usher in changes that will help jump-start growth. “We expect the Modi government to capitalise on an approaching 11-month election-free window to move ahead decisively on its reform agenda,” Deutsche Bank said in a recent report, predicting the Sensex at 29,000 by the end of the current fiscal.
India’s valuations — close to 20 time on a trailing basis — are expected to sustain as the economy recovers. “The economic growth recovery under way will likely sustain current valuations, especially as it starts manifesting in both macro and micro data points. Unlike the last three years, we expect consensus earnings growth estimates of 15%+ for FY16 and FY17 to be met, and ultimately, it is earnings momentum that drives markets,” UBS wrote in a recent report. India is now the second most expensive market among its emerging market peers.
On Wednesday, the Sensex hit an intra-day high of 28,126.48 points for the first time, closing 0.35% higher at 28,008.90 points. The broader 50-scrip Nifty closed 0.25% higher at 8,383.30 points after hitting an intra-day high of 8,415.05. According to UBS, Nifty could scale the 9,600-mark by the end of the current fiscal.
On Wednesday, most Asian markets ended higher. Japan’s Nikkei ended 0.43% higher to a seven-year high. Asian stocks advanced 0.2-1%. European stocks were trading lower.
The DAX (1.37%), CAC (-1.09%) and FTSE 100 (-0.35%) were trading in the red at 7.20 pm IST.
The rally in India had lost some steam in recent months with the Sensex gaining just 5.15% since September as against a 12% surge since the election results were announced in mid-May. Investors are expecting a fruitful session of Parliament which begins on November 24. Among the Bills that could be introduced, debated or passed are the insurance amendment Bill, the constitutional amendment Bill for GST, and amendments to the land and labour Bills.