Sensex ends at record high, eyes 60,000: 3 factors behind the rally

The US Federal Reserve’s comment that it may start tapering as soon as November failed to perturb the benchmark indices on Thursday, suggesting a strong bullish undercurrent. Further, receding concerns on Evengrande crisis also supported the sentiment. Reduction in covid cases and the strong vaccination numbers along with improvement in economic activity and the optimism around the capex cycle revival also boosted sentiments.

Amid this backdrop, the domestic benchmark indices logged strong triple-digit returns, with the BSE Sensex ending close to the 60,000 mark at 59,885, up 958 points. Meanwhile, the NSE Nifty settled today’s trade 276 points higher at 17,823. Sensex touched an all-time high of 59,957 in intra-day deals and Nifty of 17,844.

The sentiment remained robust in the broader markets too as the BSE Midcap touched new high in intra-day session and ended 1.31 per cent higher. The BSE Smallcap rose 0.91 per cent. Overall, investors added Rs 3.1 trillion to their kitty.

Analysts although have been quick to caution that correction might be around the corner.

“All previous bull markets in India – 1992-92, 1994, 1998-2000, 2003-07 – had big corrections of 5%, 10%, even 20%. But not now so far. But this will change and the market will correct, perhaps soon, since valuations are hard to justify. Amateurish money of retail investors is now dominating over the smart money of institutional investors. This may change when FIIs turn into major sellers. We don’t know now when and what might trigger that. Taking some money off the table may not be a bad idea even while riding this bull,” said Dr. V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services.

Here are the key factors behind the bull party on Dalal Street:

Fed tapering announcement

The US Fed indicated that “moderation in the pace of asset purchases may soon be warranted” and even then markets the world over, including India, rejoiced. The Fed has not given any timeline for tapering but it can be expected to begin as soon as November this year and a rate hike in 2022 looks a clear possibility. Analysts believe the Fed’s situation is nothing new and was probably already baked in.

G Chokkalingam, founder and MD at Equinomics Research stated that more than bond purchase, the interest rate hike can probably have some concern for India. And the Fed signalled they might not raise the rates immediately and investors are taking comfort from this development, he added.

Resolving crisis in China

Some positive news from struggling developer China Evergrande Group also boosted investor sentiment. One of the units of Evergrande said that it has “resolved” a coupon payment on an onshore bond. Concerns also eased after People’s Bank of China injected $17 billion into the banking system. This boosted the global sentiment, which rubbed off on Indian markets too.

Further, experts believe investors as India are seeing a silver lining amid the Chinese crisis. They believe the Chinese crackdown earlier and the Evergrande crisis now bode well for India, as it can facilitate capital flows.

Government reforms & liquidity push

The continuous reforms being undertaken by the government is helping improve the outlook for sectors thus pushing markets higher, believes Vinod Nair, head of research at Geojit Financial Services. “The PLI schemes for the various sectors and the latest reforms for the telecom sectors are some such examples. Overall, this is coming at a time when people are losing interest in China. This is turning to be a very positive thing for Indian markets,” Nair added. He added that strong interest from retail investors and FIIs is among other factors that are keeping the bull market intact.

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