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Sensex hits record high! Here are 5 factors fueling optimism on D-Street

The Nifty50 also reclaimed its crucial level of 11900 on intraday basis for the first time since July 5 (intraday basis), and is just 200-points away from hitting its own record high.

October 31, 2019 / 07:40 PM IST

The S&P BSE Sensex hit a fresh record high intraday on October 31 surpassing its previous record high of 40,312 registered back in the month of June thanks to positive global cues, as well as, positive sentiment on D-Street.

"We were expecting markets to touch historical highs around Diwali, and it has gotten there though with a 2-3 day delay. Positive earnings expectations (led by corporate tax cut), bottoming out scenario for key sectors like Auto (volumes), Banking (NPAs), Infrastructure, etc., significant fresh FII inflows and improving corporate governance (separating the wheat from the chaff) are key factors for markets moving up," Vinay Pandit – Head, Institutional Equities, IndiaNivesh told Moneycintrol.

"While maximum inflows have been coming into frontline / large cap stocks, the valuations of these companies are at near life time peaks as well. Hence, we expect smart money now moving into quality mid-caps as well. We are positive on overall direction of the market," he said.

We have collated a list of top five factors which could be fueling optimism on D-Street:

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Global Factors

US Fed rate cut of 25 bps pushed S&P 500 index to a record high while Asian markets rose to a 3-month high on Thursday.

The Fed lowered its policy rate to 1.50-1.75 percent but dropped a previous reference in its statement to “act as appropriate” to sustain the economic expansion.

However, the Fed Chairman Jerome Powell signalled additional trims are unlikely because there are several areas of strength in the US economy.

Govt's willing to take that extra mile

The recent policy responses from the government to push growth in Asia’s third-largest economy lifted D-Street sentiment. The announcement to reduce corporate tax rate was one such step, and media reports suggest that the government could be looking at realigning tax in equities.

Prime Minister Narendra Modi and Finance Minister Nirmala Sitharaman are planning a series of tax alignments for equities in the coming weeks in a bid to further boost investor sentiment and bring in much-needed foreign exchange into the government’s coffers, sources in the Finance Ministry and NITI Aayog told CNBC Awaaz.

Existing structure of Long Term Capital Gains (LTCG) tax, the Securities Transaction Tax (STT) and Dividend Distribution Tax (DTT) are being reviewed by the Prime Minister’s Office in consultation with the Finance Ministry’s Revenue Department and NITI Aayog, a source said.

Corporate Results – better than expectations

After a subdued quarter, most experts were factoring a repeat of Q1 but the majority of the results which have come out are either in-line or better than expectations which lifted market sentiment.

“Corporate results thus far have been in-line or better than expectations. The market reaction has been positive. This indicates confidence in economic revival in coming quarters,” Anil Sarin, CIO – Equities, Centrum Broking Limited told Moneycontrol.

“Possible negatives can come in the form of fresh delinquencies in Real Estate, Power and Telecom sector. Aside from these negatives, one can say that the worst is mostly over,” he said.

Festive cheer fuels rally in the Auto stocks

The auto sector is in a disruptive phase amid an increase in competition, policy overhang, and structural shift which is taking place. The recent selling in the auto names has made the sector and stock more attractive in terms of valuations.

"Auto companies were beaten down, and some of the rallies is mere normalization after a couple of years of poor performance. However, we have been fairly selective in this rally and are backing 2 wheeler players like Bajaj Auto, and TVS Motors, vs Maruti," Mukul Kochhar, Co-Head Equities, Investec Capital Services Ltd told Moneycontrol.

The recent trend suggests that the worst may well be over for the auto space as well. The October retail sales showed some signs of recovery in passenger vehicles (PVs) while growth seemed to be bottoming out in the case of two-wheelers (2W), Nomura said in a report.

“On a y-y basis, wholesales should benefit from the festive season being bunched up in Oct-19 compared to October + November in 2018. Historically, festive season retail sales have been 1.5-2.0x the average monthly volumes,” the report said.

Technical Factors

The market has already rallied by over 4 percent so far in October. The rally which was fuelled by short coverings and some fresh buying from foreign institutional investors took the S&P Sensex to a record high of 40,344 surpassing the previous high of 40,312.

The Nifty50 also reclaimed its crucial level of 11,900 on intraday basis for the first time since July 5 (intraday basis). The index is just 200-points away from hitting its own record high which most experts feel is not that far away.

The Nifty rollovers were near 53.2 percent against a 3-month average of 50.6 percent and marketwide rollovers were at 66.6 percent against the 3-month average of 69.3 percent which is a positive sign, said a report.

“The next levels for the Nifty are seen at its all-time high of 12,103 levels. If the market starts to trade below 11,785 levels then profit booking can extend towards 11,700-11,650 which was the breakout zone,” Ashish Chaturmohta, Head of Technicals and Derivatives at Sanctum Wealth Management told Moneycontrol.

“In the November monthly expiry options, maximum open interest for Put is seen at strike price 11,600 followed by 11,500; while for Call maximum open interest is seen at 11,800 followed by 12,000,” he said.



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Kshitij Anand is the Editor Markets at Moneycontrol.
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