Indian stock market halts as PSU bank stocks rally ends; 2 reasons to worry

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Published: October 27, 2017 1:23:52 PM

The momentum in Indian equity markets seemed to have paused as investors are keenly awaiting the second-quarter results. We take a look at two reasons to worry which still remain over stock markets.

Bombay Stock Exchange building. (Image: Wikimedia Commons)

The momentum in Indian equity markets seemed to have paused as investors are keenly awaiting the second-quarter results. At this point of time when the key equity indices Sensex and Nifty are hitting consecutive record highs, market participants believe that the earnings report card will provide a justification to the stock markets. Recently domestic equities surged massively after the Narendra Modi government announced a mega plan of Rs 2.11 lakh crore to recapitalise the NPA-laden PSU banks.

After a two-day extended push provided by the government’s booster package Indian equities are trading flat, though, Sensex and Nifty hit a fresh record high today. The benchmark Sensex jumped 137.45 points to hit the all-time high of 33,284.58 points while the broader Nifty 50 added 22.35 points to mark the lifetime high of 10,366.15 points. The PSU bank stocks including SBI and PNB surged up to 48% on Wednesday following the mega recap have partially pared the gains with the Nifty PSU Bank index losing about 2.5% today. We take a look at two reasons to worry which still remain over stock markets. 

FPI’s exit

The FPIs (foreign portfolio investors) have emerged as net sellers in the last three months but the markets are continuing the rally. Question is: Where will domestic investors offload the shares which they are buying heavily if foreign investors remain in exit mode? Indian stock markets have rallied to new highs despite foreign portfolio investors having sold stocks worth $3.4 billion in the last three months, the bulk of it in August; their sales have been offset by purchases by domestic institutions to the tune of $7.1 billion. Indeed, local buying since January has hit nearly $11 billion whereas foreign funds have invested just half this amount.

Inflated markets

Indian stock markets hit yet another record high on Thursday following F&O expiry. Domestic markets which started on a weaker note today spiked to fresh lifetime highs after trading lower till the mid-morning trade. BSE Sensex ended 104.63 points higher at 33,147.13 whereas the broader Nifty 50 settled 48.45 points higher at 10,343.8. The 50-share Nifty, trades at a price-earnings multiple of nearly 22 times estimated earnings for FY18 and 17.4 times estimated earnings for FY 2019, on a free-float basis.

Indian markets after Rs 2.11 lakh crore booster

Sensex and Nifty opened at lifetime highs on Wednesday cheering Modi government’s Rs 2.11 lakh crore plan to recapitalise PSU banks. BSE Sensex gained as much as 509.99 points to hit the all-time high of 33,117.33 points while NSE Nifty added 132.85 points to mark the record high of 10,340.55 points. The heavyweight banking stocks such as Punjab National Bank, State Bank of India, Bank of Baroda, ICICI Bank all advanced heavily.

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