The Sensex and Nifty retreated from their record highs amid selling pressure on Tuesday ahead of the Narendra Modi government's last full Union Budget to be announced on February 1. But the indexes have begun this year on a strong note. While the Sensex is up 1.83% or 619 points, Nifty has risen 1.84% or 191.65 points during the last six trading sessions this year. Brokerages too are bullish on the prospects of the Indian market. CLSA has given a Nifty target of 12,000 in the first half of calendar year 2018. Morgan Stanley too is bullish on the Sensex and has given a target of 35,700 by December 2018. BNP Paribas has set a target of 37,500 for the Sensex in 2018. We look at why Sensex and Nifty have started on such a positive note this year.
Optimism over Q3 earnings due to favourable effect of a low base an year ago and higher consumer spending in the festive season have been playing up in the market and led the Sensex and Nifty to record highs of 34,487 and 10,659, respectively today. India Inc will begin its December quarter earnings season with biggies such as Tata Consultancy Services (TCS), Infosys and IndusInd Bank reporting their Q3 results this week.
Renewed investor interest
Continuous foreign fund inflows and raising of bets by investors amid optimism over third quarterly earnings and upcoming Union Budget helped the key indices to hit record highs, traders said. Anand James, Chief Market Strategist at Geojit said investors are generally optimistic that upcoming Q3 numbers could show signs of earnings recovery, while the upcoming budget being the first after GST, and the last full budget before elections keep markets interested. Steady inflows from FPIs since the start of 2018 have also helped to sustain the positivity, helping indices to newer peaks on successive days.
Foreign institutional investors have brought Rs 2,431 crore into the market since January 1, 2018. The rise in FII buying this month is a welcome change after five continuous months of selling by investors in the market.
On the other hand, domestic institutional investors (DIIs) have been cautious in trade this year and sold Rs 1,142 crore of shares this year. Foreign portfolio investors (FPIs) bought shares worth a net Rs 692.83 crore, while domestic institutional investors (DIIs) sold shares worth Rs 206.30 crore on Monday, according to provisional exchange data.
Global markets hit record highs last week as strong US jobs data revived hopes of a firm economic recovery. Dow Jones Industrial Average scaled 25,000 for the first time in Thursday's trade. In Germany, Europe's economic power house, the unemployment rate hit a record low of 5.5 percent in December, underpinning a broad-based economic upswing. Responding to a flurry of positive news, Nikkei touched 26-year high whereas HangSeng Index hit ten-year high last week on January 5.
South Korea's KOSPI witnessed steep gains amid news that North Korea will meet with South Korea for talks on January 9. If this was not enough to fuel the market rally, US factory activity rose more than expected in December, boosted by a surge in new orders growth, in a further sign of strong economic momentum at the end of 2017.
For a major part of this year and 2017, global metal stocks have logged a spectacular rally on a broad-based rise in prices of commodities including iron ore and copper due to recovery in economic sentiments across the world, particularly in the US and China. The phenomenon has impacted metal stocks in Indian market with the BSE metals index rising 48% or 5168 points since January 10, 2017. During the last one month, the index has gained 14 percent or 2,020 points leading the Sensex and Nifty to record highs. On an year to date basis, the index is up 6.2% or 921 points.