Strong dollar flows into Indian equities by overseas funds, combined with better-than-expected earnings and stability in the rupee, have sparked hopes of early fireworks this festive season. With less than two weeks to go for Diwali and the benchmark indices just 120 points shy of their all-time highs, a section of the street expects Indian equities to scale new highs in the near-to-medium term.
On Monday, the Sensex ended the day at 20,893.89, up 11 points, or 0.05%, from Friday’s close. The 50-share Nifty settled at 6,204.95, up 15.60 points, or 0.25%. On November 5, 2010, the Sensex touched its all-time high of 21,004.96 on a closing basis while the Nifty had touched its peak of 6,312.45.
According to official data, foreign institutional investors (FIIs) have net purchased $1.5 billion worth of Indian shares so far this month. All in all, FIIs have pumped $15 billion into Indian equities so far this year and a little over $39 billion since the lows of December 2011 ? a reference point to the current rally. In the previous rally, FIIs had bought Indian shares worth $48 billion, Bloomberg data show.
Unlike the previous rally that was led by banks and financials and other rate-sensitive sectors like infrastructure and real estate, the present up-move is largely aided by shares of fast-moving consumer goods, pharmaceuticals and technology companies.
Interestingly, Sun Pharma and Tata Motors replaced the country’s largest lender State Bank of India and Larsen & Toubro from the list of top contributors to the rally since the lows of December 2011, show Bloomberg data compiled by FE. Also, ITC and TCS ? featuring ninth and 10th, respectively, among top contributors during the previous rally (March 2009 to November 2010) ? have outclassed some of the well known names, such as HDFC Bank, HDFC and RIL to attain the first and second position, respectively.
However, experts remain cautious of a “bull trap” as any surprises from the US Federal Reserve with respect to early tapering of its bond-buying programme and political risks in India could pull the markets back.
A bull trap is a situation wherein prices break above a significant level and generate a buy signal, but suddenly reverse course, thus ?trapping? the bulls that acted on the signal.