May 07, 2013 10:42 PM IST | Source: CNBC-TV18

Indian equities high on FII boost, but will 6000 hold?

The S&P BSE Sensex surged over 200 points intraday on expectations of further rate cuts and pick-up in economic activity. FMCG, banks, realty and auto were the top sectoral gainers on the BSE.

Moneycontrol Bureau

Relentless buying by foreign investors powered Indian equities on Tuesday, with the Nifty breaking out above the physiologically important 6000-mark. The S&P BSE Sensex surged over 200 points intraday on expectations of further rate cuts and pick-up in economic activity.

FMCG, banks, realty and auto were the top sectoral gainers on the BSE.

According to data compiled by Bloomberg, FIIs bought shares worth USD 196 million on May 3, taking their net investment in 2013 to USD 11.8 billion, a record for the period.

The bullishness stems from the fact that India’s fundamentals are perceived to be changing, says portfolio manager PN Vijay of The WPI is likely to remain benign for the next few months, which may lead to further rate cuts. Also, with the commodity prices falling, the current account deficit (CAD), which has been the biggest issue, is now seen at about 4-4.5 percent to the GDP.

"So people are betting on some sort of an economic recovery maybe much more than what the RBI expects. So, FIIs are buying under perception of an economic turnaround,” Vijay told CNBC-TV18 in an interview.

India's central bank cut its benchmark interest rate for the third time since January, as growth slows and inflation ebbs, but said there is little room to ease monetary policy further.

But the hawkish tone seems to be discounted and now the market may be trying to scale past its previous highs. And that could be a key trigger mark.

"Technically, it would be important because multi-year resistance levels would be broken. So, it is more of technical and money flow at this point of time rather than fundamentals. On the fundamental side, we can say that so far there have been no major disasters and accidents as far as earnings are concerned,” Dipan Mehta, Member NSE & BSE said. 

India is a market where the valuations have not gone up too much like in the developed market.

Will 6000 hold?

In the previous run up of the market, the Nifty came to the threshold of 6000 points and then retraced from there. The 6000-mark is more a psychological barrier, more of academic number, feels Sanjay Sinha, founder, Citrus Advisors.

If the market has crossed that level and if we do not a set of negative cues, which is going to pull it back, then the possibility of the market sustaining above 6000 levels is quite strong.

"Defending this position, in terms of the three parameters of liquidity and valuations and events, would vary from time-to-time. We have had strong set of liquidity coming into the market. Valuations are more or less in the comfortable range. Events will surely have an impact on the market levels and they can be local as well as global," he told CNBC-TV18.

According to Mehta, the lower oil price trigger is still underway. When investors finally get convinced that lower oil prices are here for the next few months, the market will see more and more flows coming in. Then there will be data points, which will be supportive in terms of inflation numbers coming through for previous months.

That trigger is still underway and whatever the rally, which began about 15-20 trading sessions ago, when oil and gold tanked, that still has some steam left in it, Mehta believes.

Technically speaking, the Nifty does not have any resistance till 6100, says Sudarshan Sukhani of “So once a trading range, which was pushing against 5950, was breached yesterday on the upside, we said let us take intraday longs and that continues to stay strong. 6100 is the point at which resistance comes. It is not easy to say whether we will reach there or breach it, but it is easier to say we should be on the long side,” he says. 

Sukhani does not rule out Nifty breaking 6300 – its all-time high level.

"Once the markets gain momentum, it is always easy to say that the momentum continues and it is possible, but I would say it is very unlikely that in the current leg of the upswing we will make lifetime new highs. The charts do not support such an idea, but theoretically yes," he explains.

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