Sensex, Nifty clock fresh record highs; 5 factors fuelling the rally

The Indian market soared to a fresh record high on Wednesday as investors cheered multiple factors such as bank recapitalisation plan, a few other global and technical factors.

The 30-share BSE Sensex saw a gap-up opening of 456.55 points, or 1.40 percent, at 33,063.89 and the 50-share NSE Nifty rose 104.80 points, or 1.03 percent, to 10,312.50. But investors have looked to book profits from that point, as indices have cooled off from the record highs.

Sundaram Mutual Fund believes that the bank recapitalisation plan of the government is a very long awaited step by the government. “They had to take the bull by the horns and it has taken the massive step to put this capital. This changes the framework with which an investor would look at banking and financial space. Structurally, they are back in the game,” S Krishna Kumar, CIO Equity, Sundaram Mutual Fund told CNBC-TV18 in an interview, adding that the risk profile of PSU banks will get a lot better.

Moneycontrol lists out five factors that is driving the markets today.

PSU banks reacted very strongly to the government’s decision to infuse capital in them. The Centre on Tuesday announced Rs 2.11 lakh crore recapitalisation plan for public sector banks spread over two years in a bid to shore up their finances, boost private investment and revive the economy.

At a press conference held by Finance Minister Arun Jaitley, Banking Secretary Rajiv Kumar said the government will infuse Rs 1.35 lakh crore through recapitalisation bonds and Rs 76,000 crore through budgetary support and market raising.

The move comes following a 2015 announcement in which the government had sanctioned a Rs 70,000-crore capital infusion under the Indradhanush banking reform scheme, 80 percent of which has already been paid out, and which was dismissed by analysts as being too little.

The Street reacted positively to the government’s infrastructure push after it approved Rs 7 lakh crore worth highway projects including the ambitious Bharatmala.

The development comes barely few months after Union Minister Nitin Gadkari said that the government will soon launch the Bharatmala project to build over 20,000 km of highways in the first phase.

The Cabinet gave the go ahead to highway projects worth about Rs 7 lakh crore for development of over 80,000 km of highways including Bharatmala project in the next five years, an official who did not wish to be quoted, told PTI.

Bharatmala is a mega plan of the government and the second-largest highways project after NHDP that saw development of about 50,000 km, and aims at improving connectivity in border and other areas.

A steady move on the global markets also aided the rally back home. Both US and Asian markets have been trading on a strong note on the back of good earnings and positive handover.

The Dow Jones industrial average rose sharply on Tuesday on the back of strong quarterly results from 3M and Caterpillar. The 30-stock index closed 167.80 points higher at 23,441.76, hitting intraday and closing record highs. JPMorgan Chase shares rose 1.6 percent to break above $100 for the first time. The S&P 500 gained 0.2 percent to finish at 2,569.13, with financials rising to their highest level in 10 years. Corning and 3M were the best performers on the index. The Nasdaq composite advanced 0.2 percent to end at 6,598.43.

The Nikkei 225 rose 0.17 percent as the dollar held onto overnight gains. The benchmark index is rising high after notching its 16th straight winning session on Tuesday — its longest ever win streak. Across the Korean Strait, the Kospi was little changed, edging down 0.01 percent as markets digested the release of quarterly earnings. The index had set a record high in the last session on expectations for strong corporate earnings.

Another factor fuelling the rally is the rise in broader markets. The S&P BSE Smallcap index rose over 40 percent so far in the year 2017 compared to a little over 22 percent gain in the S&P BSE Sensex.

Investors who have invested in smallcap stocks in the beginning of the year 2017, chances are they might be sitting on huge pile of profits. As many as 133 stocks rose in the range of 100-1000 percent so far in the year 2017.

Smallcaps enjoyed a lot of limelight thanks to pro-growth policies initiated by the Modi government, low-interest rates scenario, a gush of domestic liquidity from into mutual funds which have been big buyers of smallcaps, and midcap stocks.

Experts highlight that increased short covering could be one of the reasons for the rally, adding that the market undertone remained bullish with the support of consistent FII buying and short covering.

Derivative data indicates bullish scenario will continue in Nifty with multiple strong supports at lower levels. Various supports on the downside lie at 10,150, 10,100 & 10,050 spot levels.

Currently, Nifty is moving higher with a decent addition in open interest which suggests strength in the current trend as option writers were active in the recent rally.