Moneycontrol
Oct 18, 2017 03:21 PM IST | Source: Moneycontrol.com

Market at record high: 5 factors driving Sensex, Nifty upwards

Experts believe a combination of factors such as earnings optimism, macro data, global cues, and technical factors worked in favour of the Street, helping it post huge gains.

Market at record high: 5 factors driving Sensex, Nifty upwards

Moneycontrol News

Strength in the Indian market continued on Friday, with the Sensex gaining over 200 points intraday, while the Nifty hit its all-time high of 10,179.

Lot of positive momentum was seen ahead of the festive season and optimism was reflected in the buying counters across.

Index heavyweights continued to rule the charts and held on to the gains, even as the broader markets underperformed.

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While the Nifty was trading in the flat region in the afternoon, the Sensex had posted gains of over 200 points.

Experts believe a combination of factors such as earnings optimism, macro data, global cues, and technical factors worked in favour of the Street, helping it post huge gains. Moneycontrol elaborates on five factors why the Street rallied.

Earnings

As the September quarter earnings season kicks in, all eyes are on India Inc’s performance as the Street has pinned its hopes on earnings recovery. Experts have repeatedly pointed on the need for fundamental growth for a rally to sustain. Having said that, the December quarter performance and the long term show is likely to be better, experts feel.

"The September quarter should see a mild earnings recovery led by growth in automobiles and financials. A revival in consumption will be leading earnings recovery. As mentioned earlier, we see a larger recovery in the December quarter as the economy revives from special economic events amidst an environment conducive to consumption,"Arbind Maheswari, Head of India Equities - Sales Trading, Bank of America Merrill Lynch told Moneycontrol.

Meanwhile, the Indian stock market is expected to triple in the next 5 years, believes Ridham Desai, Head-India Equity Research & India Equity Strategist, Morgan Stanley.

According to Desai, compounded Nifty earnings will be around 20 percent in the next 5 years. “...if you compound at 20 percent Sensex and Nifty earnings which means market will triple in the next 5 years,” Desai said at Morningstar Investment Conference 2017 held in Mumbai.

Macro data

Positive macro data is also boosting sentiment on the D-Street.

India’s retail inflation remained flat at 3.28 percent in September, as food prices remained steady, while fuel and housing prices witnessing modest growth during the month.

Retail inflation, measured by Consumer Price Index (CPI) witnessed 3.36 percent growth in August, while rising at 4.31 percent in September a year ago. It is the main price gauge that the Reserve Bank of India (RBI) tracks.

Consumer food price inflation, a metric to gauge changes in monthly kitchen costs, continued to remain soft, with prices showing gradual rise at 1.76 percent from at 1.52 percent in August.

Meanwhile, India’s industrial output grew 4.3 percent in August as compared with a tepid growth of 1.2 percent in July, as the companies began restocking and building fresh inventories after clearing up the stockpile in the previous month ahead of GST’s roll out from July 1.

Factory output measured by the index of industrial production (IIP) is the closest approximation for measuring economic activity in the country’s business landscape.

Global cues

Positive global cues also seem to be working for the market.

Better than expected earnings trends have boosted the markets in US and helped them soar to fresh record highs. Equities have risen sharply this year, with the S&P 500 advancing 14 percent during the earnings season.

Additionally, supportive macro data of multi-year highs of US ISM and Chinese PMI along with accelerating capex growth is helping global markets trade high too.

Technical Factors:

The Nifty surpassed its crucial resistance level of 10,100-10,150 and is on its way to hit fresh record highs. Telecom stocks were leading the charge on the index followed by banking stocks.

The Nifty surpassed its supply zone of 10,050-10,100 as the critical supply point. Investors are advised to stay long with a strict stop loss below 9959 levels.

If the strength continues, Nifty should be able to hit fresh record highs ahead of Diwali. The Supertrend indicator too gave a buy signal on the charts which is a bullish sign for investors.

“Fresh Put writing with Call unwinding is shifting its support to higher zones and giving the scope for fresh life time highs. The Nifty made a strong Bullish candle on Thursday and closed at the highest levels in last 14 trading sessions,” Chandan Taparia, Derivatives and Technical Analyst at Motilal Oswal Securities told Moneycontrol.

“It has to continue to hold above 10050 to extend its move towards lifetime high of 10178 then 10300 while on the downside supports are seen at 10020 then 9950,” he said.

Festive cheer

As the auspicious festival of Diwali nears, investors could be betting on positive momentum to gain more.

Samvat 2073 did not disappoint investors and the upcoming Samvat 2074 analysts advise investors to stay with quality stocks with growth potential.

After falling 1.3 percent for the month of September all eyes are on October which could lend some stability to markets. Last 10 years data suggests that in the past 7 out of 10 years, Nifty closed in green with returns up to 17 percent.

The index gave 17.5 percent return in the year 2007, followed by 2011 in which it rose by 7.7 percent, and in the year 2013, it gave 9.8 percent.

While in 3 out of 10 years Nifty closed in the red. The index fell 26 percent in the year 2008, followed by 2009 in which it dropped by 7 percent and it slipped marginally in the year 2012 by 1.4 percent.
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