Indian market rocketed to fresh record high on November 11 for the third consecutive day in a row tracking positive global cues. A dip was quickly bought into, which powered Sensex and Nifty50 to fresh record highs in the run-up to Diwali 2020.
A correction or consolidation is expected as Nifty is trading in unchartered territory, but vaccine hopes, strong global liquidity, stimulus hopes, strong macro data as well as robust results from India Inc. are some of the factors that are supporting the bullish sentiment.
Foreign institutional investors (FIIs) have poured in more than Rs 23,000 crore in the cash segment of the Indian equity markets so far in the month of November compared to over Rs 12,000 crore net selloff from Domestic Institutional Investors (DIIs) in the same period.
The S&P BSE Sensex hit a record high of 43,708.47 while the Nifty50 rose to a high above 12700 for the first time in history at 12,769.75.
The S&P BSE Sensex might have reclaimed its level which was last seen on January 20 when the index hit a record high, but investors’ wealth rose by over Rs 7 lakh cr since January 20, data showed.
The average market capitalisation of the BSE listed companies rose from Rs 159.28 lakh cr as on January 20 to Rs 167 lakh cr as on November 11, 2020.
Here is a list of six factors which could be fuelling the momentum:
Pharma Rally to continue:
News about vaccine rekindled hopes of equity bulls not just for India for equity markets across the globe saw a boost. Experts are of the view that the pharma sectors which has already rallied by more than 40 percent in the calendar year could continue to do well in the near future as well.
The pharma sector remained among the few sectors that continued its upward march during the times of coronavirus pandemic when most sectors were witnessing capital outflow.
“We expect the Pharmaceuticals sector will continue to do well driven by exports especially on the API front as countries look to diversify their supply chain from China.
The Union Cabinet has on November 11 approved Production Linked Incentive (PLI) scheme for 10 sectors.
Total allocation under PLI may likely be of about Rs 1.46 lakh crore over five years. Among sectors, auto components and automobile sectors have received the maximum incentive of Rs 57,000 crore, the sources said.
Other sectors include advance cell chemistry batteries, pharmaceuticals, food products, and white goods.
Robust Earnings: Eye on FY22
The September quarter earnings season is at the halfway point, with about 30 companies announcing their results. The aggregate earnings have been in line with estimates, and the commentary is fairly positive which is positive for the market.
The reduction in corporate tax has largely resulted in better-than-expected profit delivery and also restricted the pace of earnings downgrades, Motilal Oswal said in a report. “This, combined with various government announcements to revive the troubled sectors, has helped revive market sentiment,” it said.
Of the 28 Nifty companies that have declared results, 21 have surpassed, three have missed and three have met our expectations on the PAT front.
The good performance was driven off both better than expected revenue and improved margins. “FY21 estimates will remain volatile based on how the recovery holds. Tapering of pent-up demand and uncertainty around in Covid19 trajectory mean that it may not be prudent to extrapolate the September quarter performance across the board,” Nitin Sharma, Head of Research, India – Fidelity International told Moneycontrol.
“However, at a broader level, building blocks for a structural uptick in economic activity - higher and more efficient infra spending, Make in India initiative, churn in global supply chains, improved regulatory environment - are clearly getting in place. It will support earnings in FY22 and beyond,” he said.
The micro and macro data is giving signs of green shoots in the economy which is a positive sign for the economy as well as markets.
Indicators like Manufacturing PMI, GST collection, Auto sales number, E- way bill, electricity consumption all are trending higher, showing a strong recovery in economic activities.
“Lead high-frequency indicators are suggesting a pick-up in economic growth. The Indian banking system has coped well with the pandemic challenges and it is now flushed with liquidity. Interest rates are low and lending is much likely to pick up strongly in the forthcoming quarters,” Neeraj Chadawar, Head - Quantitative Equity Research, Axis Securities told Moneycontrol.
“New home registrations are seeing a solid pick up across the metros and housing loans are surging across the banking system. Even looking at the building materials companies results, the demand scenario looks quite encouraging,” he said.Foreign Institutional Investors:
Foreign Institutional Investors (FIIs) have been net buyers in India markets since April or in 1HFY21, but have turned net sellers on a calendar year basis.
Talking about November, FIIs have poured in more than Rs 23000 cr in the cash segment of Indian markets so far in the month.
Experts are of the view that the trend is likely to continue in the near future amid hopes of a large stimulus package, and the uncertainty with regards to the US election is over and US Fed is likely to keep interest rates low.
“In this calendar year, FIIs have broadly missed Indian Stock Market rally. FIIs were net sellers close to Rs 48,000 crore till YTD. On the contrast, Nifty is up almost 60 percent from March lows, as it is a more DII driven rally, rather than FIIs,” Amit Jain, Chief Strategist - Global Asset Class at Ashika Group told Moneycontrol.
“In the last year we have seen a net addition of over 50 lakh new Demat accounts, which has helped this market to go up significantly. In my view, the next leg of the rally may be driven by FIIs, as now there is no uncertainty in the US election,” he said.
Jain further added that post-Joe Biden victory, we may see an easing of geo-political tension in the next three months, which may be good news for global businesses. India's forex reserve is near to all-time high at $520 billion, which may be good news from an exchange rate point of view,” he said.
Don’t ignore small & midcaps:
The big trend of SAMVAT 2076 was outperformance seen in the small & midcaps, and the trend is likely to continue in SAMVAT 2077 as well, suggest experts.
Both Sensex, and Nifty50 have rallied more than 30 percent since March while the S&P BSE Midcap index and the Smallcap index have rallied more than 40 percent, and over 50 percent since March, data showed.
“During times of economic revival, small and midcaps tend to outperform the large caps given their inherent operating leverage and relatively cheaper valuations,” Sampath Reddy, Chief Investment Officer, Bajaj Allianz Life.
“Something similar should happen in SAMVAT 2077 too as the market continues to recover along with the economy. Also, valuations in small and midcaps are reasonable at this point in time,” he said.