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It took over 13 months for the BSE Sensex to scale a new high. On Thursday November 25th, the last day of the monthly expiry, the benchmark index touched a new intra-day high of 62,412, breaking its earlier record of 62,245, reached on October 19, 2021.
In scaling a new high, the Indian benchmark index has broken new records. According to Bloomberg, the Sensex’s gain of seven percent during the year is the highest among benchmark indices in countries with a market capitalisation of over $1 trillion. Unless the market falls, the Sensex will be on course for the seventh straight annual advance (calendar year).
The rise is noteworthy because it has come despite multiple headwinds. A Russia-Ukraine war led energy and food crisis, quantitative tightening, rising inflation and interest rates, depreciating currency and record foreign fund withdrawals have all affected equity markets worldwide. But Indian markets stood strong and touched a new high.
What helped the Indian market post a smart recovery is strong corporate earnings growth. India was among the few countries to bounce back quickly from the pandemic-induced crisis. Also, a global supply chain crisis helped Indian companies to capitalise on the opportunity for alternative production sites. A crisis in China resulted in buyers looking for alternative sources of goods. Indian companies swiftly seized the opportunity in filling the gap.
Though interest rates in India were also moving higher, it did not affect consumption the way it had done historically. Real estate and automobile, the two rate-sensitive areas performed better than market expectations, suggesting a hungry economy not willing to wait for rates to settle down.
Besides a strong economy, investors' interest in Indian markets remained strong. After record selling by foreign investors in the first half of 2022, the tide has reversed. Foreign investors’ are reposing faith in Indian equities, turning aggressive buyers as the rupee stabilised and inflation showed signs of peaking. FPI investment touched Rs 30,385 crore by mid-November, the highest since January 2022.
Domestic investors continued to keep faith in Indian markets. Besides direct investments, SIPs continued to witness record flows. Contribution of SIPs to the mutual fund industry AUM increased steadily from Rs 5.5 lakh crore to Rs 6.6 lakh crore over the past one year, thereby increasing its contribution from 14.8 percent to 16.8 percent.
The question on everybody’s mind is, of course, if the rally will continue.
There are three dark clouds that can decide the future of markets. Firstly, escalation of the Russia-Ukraine war is an overhang. Second, the inflation trajectory bears watching. Minutes from the Fed's November meeting showed that a majority of policymakers agreed that it would soon be appropriate to slow the pace of rate hikes, but if this does not happen it can be chaotic for the market.
Finally, the biggest mover of the market will be oil prices. Though below the $90 a barrel mark, oil supply can be affected after the European Union implements supply restrictions and imposes a price cap on Russian oil. Analysts expect volatility in the oil market to increase in December, which can have a rub-off effect on equity markets.
Indian markets in the present situation look strong, given the multiple tailwinds driving them. However, for investors, given the fluid global situation, it is better to stand near the exit when the music stops.
One good read from today’s Pro edition is Ananya Roy’s analysis of how tracking what smart money does can point to what lies ahead. Right now, the lights are flashing amber, as per that view.
Investing insights from our research team
Weekly Tactical Pick: A come-from-behind story in the insurance space
Gabriel India: EVs to drive next leg of growth
What else are we reading? Indian CEOs get a much longer rope than Disney gave Bob Chapek
Online gaming faces a moment of reckoning
Why green energy stocks fail to click with investors
GuruSpeak: Nikhil Zelawat's journals the secret sauce of his successful trading recipe
Personal Finance: Is your PMS fund manager doing a great, middling or poor job?
Meta is India’s largest media company. What does this say about Indian business?
Collateralised fund obligations: How private equity securitised itself (republished from the FT)
Unilateral economic sanctions are commonly used, but what is the legal implication
Brazil misses out on World Cup betting. What’s India’s wager?
Technical Picks: IEX, Sona BLW Precision, Infosys and REC (These are published every trading day before markets open and can be read on the app).
Shishir Asthana
Moneycontrol Pro
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