Domestic institutions have pumped in money and are expected to continue to match or even exceed foreign portfolio inflows in the last week of 2017
As Christmas rings in the Yuletide spirit and cheer, stock market participants are looking towards the Santa rally to sign off 2017 on a high note.
Santa rally, which typically begins one or two sessions ahead of December 25 and continues for about a week, has seen the Sensex clock gains on nine occasions in the past 10 years, shows data.
Though Santa Claus rally is synonymous with Western markets' stock price buoyancy over the final week of trading prior to the new year, the large impact of foreign portfolio investors on Indian equities makes is relevant for domestic markets too, traders said.
This year, domestic institutions have pumped in money and are expected to continue to match or even exceed foreign portfolio inflows in the last week of 2017, they added.
"As such, there is no negative event lined up in the near-term. The Gujarat and Himachal election results are out. The courts have given their verdicts on the politically sensitive 2G and fodder scams. The Sensex and the Nifty on Friday gained half a percentage point, and that could be a start. Volatility could pick up around Thursday, 28 December due to F&O (futures and options) contract expiry," said a senior fund manager at a foreign asset management company. So far year to date, the Sensex is up 30% and the Nifty is up 32%.
A study of last 10 years shows the Indian equities see a nice uptick in the last week of the year. The Sensex has usually seen 2%-plus gains during the Santa rally in 2016, 2012 and every year between 2007 and 2010. It was only in 2011 that markets corrected during this time-period.
A 2% gain now would translate into 600-700 points jump, taking the Sensex beyond the 34000-levels. The Nifty is poised at just below 10500-levels.
Anita Gandhi, whole time director, Arihant Capital Markets, said, "Optimism is expected to continue due to the expectation of NAV (net asset value)-based buying until December-end. Credit growth of banking sector has started showing signs of improvement. With the improvement in NPA (non-performing asset) levels, PSU banks are poised for the growth phase."
Foreign fund vehicles usually engage in NAV-based buying at the end of the calendar year. It is said that bonuses of investment managers depend on the relative outperformance to the indices measured at the end of the calendar year, coinciding with the Santa rally.
From the point of view of market valuations, both Sensex and Nifty have shown remarkable resilience as liquidity-driven investors have continued to buy stocks at every jump and a new record high.
Jaideep Arora, CEO, Sharekhan, said, "The valuations of Indian stock markets may look expensive as per their price-to-earnings ratio. However, if we were to analyse other parameters, a different story emerges. If we see the price-to-book value (P/B) ratio or market capitalisation-to-GDP ratio, markets don't seem that expensive."
The government has a slew of important Bills on its agenda in this session. The movement of rupee against the dollar and crude oil price movement will also dictate trend on the bourses in the truncated week ahead. The stock markets will remain closed today on account of Christmas holiday.
On the global front, the minutes of Bank of Japan's (BOJ) monetary policy meeting will be released today and US initial jobless claims for the week ended 22 December, 2017, will be released on Thursday, 28 December, 2017.
- Domestic institutions have pumped in money and are expected to continue to match or even exceed foreign portfolio inflows in the last week of 2017
- However, volatility could pick up around Thursday, 28 December due to F&O contract expiry
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A study of last 10 years shows the Indian equities see a nice uptick in the last week of the year. The Sensex has usually seen 2%-plus gains during the Santa rally in 2016, 2012 and every year between 2007 and 2010. It was only in 2011 that markets corrected during this time-period.
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