The recent rally in domestic stocks has lifted the benchmark indices Nifty and Sensex to new lifetime highs, with the NSE Nifty 50 surpassing the 9,500 mark and the BSE Sensex nearing 30,700 points for the first time ever. In this year alone, Sensex has rallied close to 15% while Nifty has risen more than 16%, supported by a buoyant political environment in the country, expected corporate earnings rebound and strong economic factors. Many experts suggest that the bull run isn’t over yet as markets still have a lot to offer.
Brokerage firm CLSA had said in March 2017 that it expects NSE Nifty to hit 10,300 points once the index breaks through the levels around 9,000 points. “We ultimately believe that this 9,000 area, we will break through that and make new all-time highs,” CLSA’s Global Technical Analyst Laurence Balanco had said in a TV interview. The brokerage has a first target of 10,300 points on Nifty with the support at the levels of its December lows, Balanco had said.
Here, we take a look at top six factors, which may help Nifty scale the next magical high of 10,000 points as Prime Minister Narendra Modi tries to prop up the economy in the remaining two years of his term.
Monsoon holds a special significance in an agri-dependent economy such as India, as most of the rural economy is centred around the rains. Earlier this month, the Indian Meteorological Department (IMD) predicted monsoon to be ‘normal’ this year, at 96% of the long period average. It added that prospects of a normal monsoon are bright because of the reduction in the likelihood of El-Nino. As long as the rain gods continue to play sport, Indian markets shall continue to scale new highs.
Encouraging inflation and industrial production data have raised hopes of a rate cut by the central bank in its next bi-monthly review, which might bolster the markets with a boost to consumer spending resulting in better top-line growth for companies. The Economic Outlook Survey brought out by industry body FICCI has forecast the country’s gross domestic product (GDP) growth for 2016-17 to be between 6.6 per cent and 7.1 per cent.
“The government has done a good job in strengthening the economy in the last three years. We believe that government is likely to keep its focus on economic progress by bringing key reforms which will further put the country in the high growth orbit,” Vaibhav Agrawal, Head of Research and ARQ, Angel Broking, said in a research note.
Indian benchmark indices have recently seen sustained gains led by blue-chip stocks on the back of strong corporate earnings growth. Several analysts and market participants, including firms such as Goldman Sachs, Morgan Stanley, predict a strong revival in companies’ earnings in the current financial year and the next. While Goldman Sachs has upped its estimate for corporate earnings growth to 15% for the current financial year 2017-18, Morgan Stanley recently raised its growth estimate for the next year 2018-19 to 24%.
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The rupee has been appreciating because of strong capital inflows. These include portfolio inflows into equities and, more importantly, debt markets. Earnings for the companies that make up the Nifty, fall by 0.6% for every 1% appreciation in the rupee, according to a research note from UBS. But this fall is offset by higher inflows trying to take advantage of the boost to returns provided by a stronger rupee. An illustration is the MSCI India equity index, which as of 25 April, was up 12.97% in rupee terms, but up 19.28% in USD terms.
Government’s policy push
The Narendra Modi-government has implemented several policy reforms including Make in India, Goods and Services Tax (GST), Digital India and affordable housing for the poor, which have been helping to propel the markets forward as results start to show.
“There is no doubt that GST, Digital India and affordable housing have potential to shape up the future of the country. With markets reaching new highs, we are seeing the positive effects of the government policies. We continue to maintain positive outlook on the Indian markets,” Angel Broking’s Vaibhav Agrawal said in the note.
Foreign fund inflows
Foreign portfolio investors play a key role in influencing the direction of Indian stock markets because of their sheer financial muscle power. Although there was net foreign fund outflow of Rs 559.7 crore in January, FPIs have pumped in Rs 44,827.1 crore in the Indian markets since the beginning of the year.