The S&P BSE Sensex pared gains in late trade after hitting a top of 38,254 during the day on March 15. The index rose above 38,000 for the first time since September 17, 2018.
The Nifty50 also reclaimed 11,400 for the first time since September 18, 2018.
Here are the four factors that might have fuelled the rally:
Global Cues: European shares breach 5-month high
Global cues which were fairly muted at the beginning of the trading session turned favourable by afternoon. “European shares rose on Friday breaching a five-month high hit a day earlier as investors cheered positive signals over US-China trade talks and after UK lawmakers voted to delay a potentially chaotic exit from the European Union,” said a Reuters report.
The mood was also boosted by growing expectations that Britain will not leave the European Union without a deal on March 29 following Thursday night’s parliamentary vote, it said.
Macro Triggers
The trajectory of even wholesale inflation, as well as CPI, reversed in the month of February 2019, higher than the previous month.
But, with overall inflation still in the comfort zone and GDP growth momentum waning, experts believe RBI may go for a rate cut. Ind-Ra believes RBI may go for a rate cut in its first bi-monthly monetary policy statement of 2019-20.
Meanwhile, IIP growth was soft at 1.7 percent in January compared to an upward revised print of 2.6 percent in December.
"Given the bleak estimates of CPI and IIP in the forthcoming months and a 5 quarter low GDP the future rate cut path for the MPC has been cleared out as the governor believes in going by the factual data in hand keeping in mind the growth outlook," Narnolia Financial Advisors said in a note.
Banks lead charge on D-Street
NiftyBank touched yet another record high of 29,520, led by gains in Kotak Mahindra Bank, IDFC First Bank, SBI, PNB, Federal Bank, Bank of Baroda and ICICI Bank.
One thing which is supporting the sentiment in banking space is valuations, expectations of further rate cut as well as hopes of return of a stable government at the Center in the upcoming general elections.
PSU Banks are trading at a P/B of 0.8x, at a 12 percent discount to its historical average of 0.9x. Net stressed loans have moderated buoyed by healthy recoveries and a decline in fresh slippages.
“Downgrade of IL&FS account impacted the slippages trajectory for a few banks (Indian Bank, Canara Bank and Bank of Baroda). SBI and PNB appear well placed to benefit from the upcoming NCLT resolutions,” Siddhartha Khemka, Head of Retail Research, MOFSL told Moneycontrol.
“Operating performance has improved moderately led by NII growth on calibrated margin recovery. The government has further announced capital infusion of INR482bn in 12 PSBs to meet their provisioning and capital requirements,” he said.
“All these factors combined with comfortable valuations make us overweight on PSU banks with our top pick being SBI,” added Khemka.
Even RBI relaxed the PCA norms for Bank of India, Bank of Maharashtra, Oriental Bank of Commerce, Allahabad Bank & Corporation Bank subject to continuous monitoring. This would help in credit growth for some of these PSU.
FII Buying
Liquidity has given ammunition to the bulls to charge ahead on D-Street. Foreign investors have poured in more than Rs 14,000 crore in Indian markets so far in March while domestic institutional investors have pulled out nearly Rs 7000 crore in the same period.
“The BSE-30 Index gained by 1,404 points 3.8 percent in the past week. Rally in the Indian markets was led by strong FII buying on account of reduction in geopolitical risks and opinion polls suggested a likely return of the NDA government in general election 2019 were announced,” Sanjeev Zarbade, Vice President- PCG Research, Kotak Securities.
Technical View:
Nifty formed a bullish candle on the daily charts which also resembled a ‘Shooting Star’ kind of pattern while on the weekly charts, the index formed a bullish candle.
Formation of a Shooting Star pattern suggests a pause in momentum, but that still requires confirmation. If the index closes below 11,370 on Monday then further consolidation cannot be ruled out in the coming week.
“The Nifty50 registered a bullish candle but with slightly longer upper shadow which resembles a Shooting Star kind of formation whereas on weekly charts a robust bull candle is seen,” Mazhar Mohammad, Chief Strategist – Technical Research & Trading Advisory, Chartviewindia.in told Moneycontrol.
“In the next trading session if Nifty slips below 11,370 kind of levels then it may set the tone for near term weakness in the index. Contrary to this, sustaining above 11,370 levels the Nifty can make an attempt to target the zone of 11,550 – 600 levels in the week ahead,” he said.
He advise short term traders to maintain a neutral stance on index and should shift their focus to stock specific opportunities.
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