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Rising tide of liquidity lifts global markets to new highs

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SummaryShrugging off a poor earnings season and a political crisis, stocks soared on Tuesday buoyed by liquidity, taking a cue from Asia and the rest of the globe.

Shrugging off a poor earnings season and a political crisis, stocks soared on Tuesday buoyed by liquidity, taking a cue from Asia and the rest of the globe. Both the benchmark indices put on more than 1% each, with the Nifty closing at 6,043.55 points, its highest close since January 30, 2013, and the Sensex at 19,888.95, up 215.31 points. The Sensex has gained just 3.7%, in dollar terms, since January and remains among the worst-performing markets globally, despite seeing larger foreign flows than peer markets.

With central banks around the globe continuing to take accommodating stances, the rally in global markets continued on Tuesday. The Dow Jones Industrial Average opened at a new high of 15,010 while the S&P was trading at its lifetime high of 1,621 at 7.30 IST. European indices too surged to lifetime highs; the FTSE was trading at 6,561 — its all-time high — while DAX was up more than 1% at 8,194 after hitting its highest level during the day. In Asia, the Nikkei gained nearly 400 points or 3.55% on Tuesday, and closed at a five-and-a-half-year high. The Hang Seng was up 0.58% or 132 points and the Jakarta Composite rose 1.09% or 51 points while Malaysia’s KLSE Composite gained 1.41%.

Market watchers are surprised at the resilience in the markets despite the slight rise in commodity prices which had softened significantly last month. Said Manishi Raychaudhuri, MD and head of research at BNP Paribas Securities: “The strength of the rally is puzzling because corporate results have been mediocre, there’s little happening on the policy front and oil prices are back at $105 per barrel. This rally seems to be almost entirely driven by global liquidity and, therefore, it is difficult to take a call on its longevity.”

Said Nandan Chakravarty, MD, institutional research at Axis Capital: “This is the first time that gold and crude oil have been moving in tandem, both ways, which is very unusual. Foreign funds are waiting for an early resolution to the political impasse in India to invest their ever-burgeoning holdings of US treasuries into equity markets in the US and attractive emerging economies like India.”

Indeed, foreign institutional investors (FIIs) continued to shop for Indian stocks — they bought $121 million worth of equities on Tuesday — and have invested more than $12 billion so far this year. According to Bloomberg, FIIs bought a net $802 million worth

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