Nifty scales 10,000 mark, Sensex at all-time high: Five factors that led to the rally

The Nifty on Wednesday crossed the 10,000 mark for the first time ever in its 21 year history.  The Sensex too hit an all-time high of 32,374 in early trade. The Sensex and Nifty surged nearly 21 percent this year and are likely to hit new highs in the near future, say analysts.

Also read: Nifty crosses historic 10,000 mark, Sensex hits new high

We look at factors which led to the Nifty scaling the five-digit mark and Sensex reaching new highs.

Strong quarterly earnings

The first quarter earnings of corporate India have come above street expectations and buoyed market sentiments.

Dalal street behemoth Reliance Industries posted a 8.59 per cent year-on-year (YoY) rise in standalone net profit at Rs 8,196 crore for the quarter ended June 2017 against Rs 7,548 crore reported for the corresponding quarter last year.

IT major Wipro reported a 1.2 per cent rise in its consolidated net profit at Rs 2,076.7 crore for the April-June quarter. The Bengaluru-based firm had registered a net profit of Rs 2,052 crore in the same quarter last year.

Infosys reported a 1.4 percent rise in Q1 net profit on Friday, posting Rs 3,483 crore in net profit compared with Rs 3,436 crore in the corresponding period of last fiscal. Analysts had, on average, estimated a consolidated net profit of Rs 3,439 crore for the quarter ending June, according to Thomson Reuters data.

Private sector lender HDFC Bank reported a 20.22 per cent increase in net profit to Rs 3,893.84 crore for the quarter ended on June 30, 2017, compared to the same period last year. The bank had earned a profit of Rs 3,238.91 crore in the April-June quarter of last fiscal.

Strong investor interest

During the last 10 months till June 2017, domestic institutional and foreign institutional investors have poured in Rs 97,070.13 crore into the Indian market. In July too, investors pumped in Rs 2,786.19 crore.  

RIL stock effect

The stock which rose 122 percent or 885 points during the last five years made 57.89 percent or 590 points gain during the last one year.

The stock's meteoric rise in the last 365 days can be attributed to Reliance Jio launching its free services, disrupting the telecom market. Analysts pointed out the large subscriber base Jio registered could translate into paid subscribers after the free offers end. This would inturn lead to huge revenues for the firm.

Last week, the firm announced Jio phone at zero cost (Rs 1500 deposit only for three years) which would disrupt the feature phone market in India. The new offering coupled with Rs 153 per month plan for buyers of this phone would is likely to add to revenue from Jio's paid services and lead to an upside to the stock in the near future. The stock is now trading at a fresh nine-year high on the back of Mukesh Ambani's telecom venture announcements and Reliance Industries bonus issue.

RBI rate cut hopes

The Reserve Bank of India is expected to cut key rates in its August 2 policy meet on the back of June retail inflation falling to a five-year low on drop in food prices.

Retail inflation hit a "historically low" level of 1.54 per cent in June on dip in food items such as vegetables, pulses and milk products.

Wholesale inflation too fell to 0.90 per cent in June -- the lowest in at least eight months -- as prices of food articles, including vegetables, declined. Inflation based on the wholesale price index (WPI) was 2.17 per cent in May 2017 and (-) 0.09 per cent in June 2016.

Currently, the repo rate and reverse repo rate stand at 6.25 percent and 6 percent, respectively.

If RBI cuts rates, it will leave more money at the disposal of banks, leading to increased lending to corporates, industries and individuals aiding economic growth.

Robust economic forecasts

The International Monetary Fund (IMF) on Monday predicted India would continue to grow at a faster pace than China's in 2017 as well as 2018. The IMF retained India's GDP forecast at 7.2 cent for the current fiscal and sees it accelerating to 7.7 per cent in 2018-19. 

Recently, a Reuters poll of over 35 economists showed India's economy is expected to expand 7.3 percent in the fiscal year ending March 2018, after slowing sharply at the start of 2017 following last year's government move to scrap high-value banknotes. A similar Reuters poll of economists predicted China would grow by 6.6 per cent in calendar year 2017.