Gold Silver Reports — Sensex Ends Day at 18-Month High — Benchmark indices rose to an 18-month high on Thursday but gains were capped amid brewing worries about rich stock valuations. Weakness in the information technology space led by Tata Consultancy Services, which gave a cautious outlook for the coming quarters, put pressure on the market kept a lid on broad market gains driven by metals, pharmaceutical and automobile shares.
Sensex closed above 29,000 points for the first time since April 13, 2015. The index ended up 0.4%, or 119 points, at 29,045.28. The NSE Nifty ended up 34.55 points at 8952.5, just 0.5% away from its record closing high. Both indices have gained 4.3 % in the last two weeks.
The Nifty Midcap index outperformed the benchmark, gaining 0.7% to end at a record closing high.
Even as the markets appear to be inching closer to record high, market participants are divided on how much further the rally can last. Strong liquidity conditions globally amid lowered expectation of a rate hike by the US Federal Reserve and better macro-economic position compared to other countries has seen stock indices gain over 25% since March.Expectation that global central banks will continue their easy money policies in the near future has also added to the optimism.
“As long as the liquidity conditions are strong, the momentum will continue with a positive bias,“ said Harsha Upadhyaya, CIOEquity , Kotak Mahindra AMC.
Buying momentum from foreign portfolio investors has been more or less uninterrupted. On Thursday, FPIs bought shares worth Rs 111 crore, taking their total investments for the year to Rs 43,000 crore.
“VIX is at a near 17-month low and the PCR (put-call ratio) is close to a one-year high which indicates that put writers are more than the call writers and the positive trend remains intact,“ said Chandan Taparia, derivative analyst at Anand Rathi.
But not all are convinced. There is doubt particularly on the sustainability of easy money policies of central banks.
“Negativehistorically low interest rate environment induced risk rally across global assets might n o t s u s t a i n a s s t r o n g l y.Commentaryactions of FOMC in the upcoming meeting will likely set the tone for global capital flows,“ Deutsche Bank said in a note.
In the latest development, the European Central Bank’s kept rates unchanged decided against extending the duration of its bondbuying programme, which sent E u ro p e a n s t o ck s l owe r o n Thursday and may weigh on Indian stocks on Friday .
“There is froth in the (Indian equity) market. People just want to latch on to anything and we don’t see it sustaining,“ said Sanjiv Bhasin, Executive VPMarket & Corporate Affairs, IIFL.
“The next two weeks can be treacherous globally. There is a steep correction in the offing,“ added Bhasin.
The stock market rally so far in 2016 has made the market expensive compared to others. Nifty is trading at 18.7 times one-year forward earnings compared to 13.43 times which the MSCI Emerging Markets is trading at.
Some analysts said a sharp correction is unlikely due to lack of triggers.
“Market is getting overbought but triggers for a sharp fall are not there,“ said Piyush Garg, CIO, ICICI Securities. — Neal Bhai Reports