Nifty starts FY18 by hitting fresh record highs; 5 factors pushing markets higher

The financial year FY18 started on a firm note as Nifty rose to a fresh record high of 9,220.65 in opening trade on Monday while the S&P BSE Sensex rose 167 points.

The broader market too witnessed strong buying interest. The S&P BSE midcap index was up 0.5 percent while the S&P BSE smallcap index rose 1.06 percent in the first half of the trading session.

Going by the buzz on D-Street, we have collated a list of top five factors which could be fuelling a rally.

RIL leads rally:

Reliance Industries hit a fresh nine-year high of Rs 1,380.50 on the positive response to Jio Prime membership as well as an extension in the deadline to subscribe to it.

The company said that the service was extended due to the overwhelming response from the customers. Over 72 million Jio customers have signed up for Jio Prime membership, the company said in a statement.

The global brokerage firm CLSA maintained ‘Buy’ on the oil-to-telecom conglomerate and set its target price at Rs 1,500 per share. CLSA said subscriber addition stood above expectation and Jio could reach well over 100 million paid subscribers by March 2018.

Domestic brokerage house Sharekhan is also bullish on RIL with a target price of Rs 1,400.

Disclaimer: Reliance Jio is a part of Reliance Industries that owns Network 18 Media & moneycontrol.com

FII Buying Resumes:

The foreign institutional investors (FIIs) have pumped a massive USD 3.6 billion (Rs 23,435 crore) into the stock markets on a net basis so far in March, the highest in a month since February 2013.

FIIs have pumped nearly USD 5 billion (Rs 32,160 crore) into Indian stocks and about USD 8.3 billion (Rs 53,808 crore) on an aggregate basis so far in 2017, data with share depository NSDL showed.

Strong GDP growth outlook:

After demonetisation, most global brokerage firms slashed gross domestic product (GDP) estimates for India. But the reality proved them all wrong.

India will grow at 7.2 percent this year and 7.7 percent in 2018, Finance Minister Arun Jaitley said on Saturday, striking a bullish note about the economy’s ability to quickly gather pace in the coming months.

However, he cautioned that emerging markets face new challenges from growing protectionism and geopolitical tension.

Hopes of continuation of reforms:

The goods and services tax (GST) passed in the Lok Sabha at lightning speed shows the conviction of the government to accelerate the reform agenda for the country. July 1 seems to be a realistic date for implementation of the unified tax structure.

“Flawless implementation of GST will be crucial to avoid any trade disruption and the consequent impact on earnings. Government’s push towards formalisation of the economy will continue in our view,” Gautam Duggad, Head of Research, MOSL told Moneycontrol.

“Going forward, we expect more initiatives from the government on black money, financial inclusion, non-performing assets of PSU Banks and overall infrastructure thrust in the absence of pick-up in private capex. Recent election victories in UP should augment the reform momentum,” he said.

Expectations of double-digit earnings growth:

The FY18 returns are going to be a function of revival in earnings growth which has been elusive so far. It is expected to stage a recovery in FY18.

Given the flattish earnings seen over the last 3-4 years, we understand that there remains skepticism over the recovery. But FY18 we could witness the confluence of earnings recovery (earnings growth of mid-teens) and pickup in reforms, suggest experts.

“Going forward, given the low base, stable commodity prices and revival of consumption led demand, we expect strong double-digit earnings recovery over FY18-19 earnings,” Pankaj Pandey, Head of Research, ICICI Securities told Moneycontrol.

“We assign a multiple of 16x on FY18E & FY19 average EPS (average of Rs. 1750 and Rs 2098) to arrive at a fair value of 30,800 as our CY17/FY18E target for the Sensex and 9,300 levels for Nifty50,” he said.