The Indian market extended its record run to December 15, with the 30-pack Sensex breaching the 71,000-mark and the broad-based Nifty 50 topping 21,300 points in the morning trade.
The US Federal Reserve’s dovish outlook for 2024 continued to fuel optimism among participants, who seems to have taken the Bank of England and the European Central Bank’s hawkish comments in their stride. India’s strong fundamentals have got the attention of foreign investors, with a weaker dollar and easing bond yields aiding the sentiment.
So far this week, foreign institutional investors (FIIs) have poured over Rs 9,600 crore into Indian equities against domestic institutional investors (DIIs) buying Rs 485.1 crore worth of stocks.
Analysts say FIIs flows will continue in India in the near term. “Sharp dip in the US bond yields will trigger large capital flows into emerging markets, especially India,” said VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services.
Since largecap financials and IT were “reasonably valued”, they would be FIIs’ favourite sectors, he said.
After the Fed indicated multiple rate cuts in 2024, banking and IT sectors have been sizzling on hopes of easy money policy scenario and demand recovery.
In the first hour of December 15 deals, the BSE financial services index hit an all-time high of 10,498, while BSE IT touched a 52-week high of 35,398.
On the IT sector, Mayuresh Joshi, Head of Equity Research at William O Neil, said that hopes of a soft-landing in the US and European markets would revive demand and order books, which were stagnant in the last couple of quarters.
“Order inflows, positive currency movement will augur margins of IT companies that has been lagging in the past couple of quarters,” he told Finrollnews.
Joshi said he would prefer midcap IT companies such as Cyient and Persistent Systems over largecaps due strong growth situation and valuation comfort. “We will take one more quarter to take selective calls for largecap IT names,” he added.
On the other hand, Raja Venkatraman, co-founder of Neotrader, told Finrollnews that banks should participate in this bull run. “After the Bank Nifty crossed 46,000 levels, we have seen higher levels from here on. We can expect the rally to continue in the near-term,” he said.
Other sectoral indices such as BSE auto, BSE capital goods, BSE PSU and BSE metals also hit record highs in the morning trade.
Broader markets entering ‘bubble territory’
BSE smallcap and midcap indices extended their bull runs to hit fresh lifetime highs of 42,147 and 36,421.
The Street, however, believes that the traders “jumping and pumping” money into the broader markets was a “false reaction” to overall exuberance and some of the pockets were stretched.
“Valuations in the broader markets are moving into a bubble territory,” Vijayakumar said.
At high valuations, the broader markets are vulnerable to sharp correction if there is an unforeseen event. “Even while remaining invested, investors should exercise caution,” he said.
ECB, BoE’s ‘restrictive’ policies unwarranted
Though the US Fed was dovish on 2024, the European Central Bank (ECB) and the Bank of England (BoE) shared a hawkish outlook, saying that the restrictive monetary policy would remain in place until situation demands so. Both the banks, however, kept their interest rates unchanged.
Against this, AK Prabhakar, Head of Research at IDBI Capital, said not to read too much. “When God (the US Fed) has shared a dovish outlook, other central banks will follow suit as well,” he said.
Since India was dependent on dollar economy world, Prabhakar said there would not be much impact on markets despite European banks sticking to their hawkish outlook.