Domestic markets remained firm on Wednesday with both BSE Sensex and NSE Nifty touching their fresh all-time high driven by positive global cues and hopes of a good monsoon. The BSE Sensex jumped 314.92 points to close at new peak of 30,248.17, while NSE Nifty ended above 9,400 for first time by jumping 90.45 points to 9,407.30.
One of the major factors that gave domestic markets a boost on Wednesday was the Indian Meteorological Department’s latest update on monsoon. It predicted the monsoon to be ‘normal’ this year, which will bring 100 per cent rainfall instead of 96 per cent as predicted earlier, boosting the rural economy. (ALAO READ: Monsoon likely to be normal this year: IMD)
Global markets were also on an upswing with the Asian markets trading higher following an overnight positive lead from European and US markets.
Sentiment also got a boost after data showed that foreign funds, which were net sellers on the Indian bourses for the past few sessions, made fresh purchases in Tuesday’s trade.
The Indian markets’ performance so far has been strong and analysts expect the rally to continue. On the year-to-date basis, Sensex has risen 12. 55 per cent. It had settled at 26,595.45 on Jan 2, 2017, while on May 9, 2017 it ended at 29,933.25.
On Wednesday’s market movement, Senior president and CEO YES Securities (India) Ltd Prasanth Prabhakaran said, “the markets are on an upward trajectory supported by an improvement in the country’s fundamentals. This is clearly reflected in the earnings growth that has improved from the levels seen 3 – 4 quarters ago. Although recovery is yet to be broad-based, earnings are on the path of improvement. Fundamentals are expected to improve on the back of improving macroeconomic factors with recovery led by consumption, followed by public sector capex and external demand improvement, benefits of reforms percolating to the ground level and conducive inflation/interest rate environment.”
Will the rally continue?
He believes that markets would continue to trend upwards over the long-term, however, there could be some aberrations due to global events, but our markets would be quick to recover during such times as the domestic growth story remains intact.
With a prediction of improved monsoon this year, the hopes better farm output is also very high. A higher farm output would mean higher rural wages, which in turn helps drive consumption on the rural side. The higher consumption would drive the topline growth and reflect in corporate earnings. Prabhakaran elaborates on how consumption is a bigger driver for the markets in India growth story and said, “We have seen real average household incomes going up in recent times. On the urban side, real urban disposable income has remained stable, particularly as inflation has ebbed. On the rural side too, easing inflation in addition to better farm output has led to an improvement in real wages. Both the factors together have helped boost consumption which in turn has led to an improvement in demand. This improvement will help in driving topline growth and consequently corporate earnings growth, thereby providing the fundamental support to the upward trend in the markets.”
Sectors to bet upon
On the back of good monsoon, he remains positive on autos and auto ancillaries as they enjoy a multiplier effect to economic growth. He suggests stocks from the infrastructure and capital goods spaces given the Government’s focus in that space. With the onset of summers in most of the country, consumer durables stand to benefit. Prabhakaran is optimistic on infrastructure and sectors linked to affordable housing, and consumption, but cautions that investments should be done only in quality names in these spaces.