After trading between 16,000 and 18,000 for almost seven months, the Sensex breached the 19,000 mark in just 15 trading sessions after it crossed the 18,000 mark on September 12, 2012. Fuelled by reform initiatives of the government and liquidity in global markets, the Sensex has grown by 10 per cent over the last month.Also the SGX Nifty Futures for October closed at 5,831 as against Nifty closing of 5,787 on Thursday which hints that the markets may go up further in the current rally. However in the absence of support from economic growth fundamentals it is likely that the rally may not go too far, considering that in the past the markets have risen briskly but then have come down.
What began with diesel price hike and allowing FDI in multi-brand retail, is set to move ahead with government making clear that it will go ahead with the reform process.
However domestic action coinciding with quantitative easing by the US Federal Reserve has certainly acted to the advantage of Indian markets as can be seen from its relative outperformance. Against 10 per cent rise in the Indian markets over the last one month, premier indices in China, Brazil and Korea have risen by 2.4, 3.1 and 6.3 per cent respectively. Even the premier indices of Germany, US and UK have risen by 5, 3.4 and 3 per cent respectively. While the reform steps have pushed the markets, many argue that governmentís moves are not strong enough. Recently KV Kamath, in an interview to The Indian Express said that governmentís steps do not provide courage to corporate India to make investments. While the country is losing on clarification in policies ó land and environment, there dramatic slowdown in infrastructure sector.
Thus if the real economy does not take-off, the sustenance of market rally will remain under question.
There are others who feel that while the rally is supported by strong FII inflow, valuations do not look cheap as Indian markets trading at a premium to most of their peers.
Sandeep is a Senior Assistant Editor based in Mumbai.