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Modi magic sweeps Dalal Street

Growing confidence in political stability, liquidity slosh, positive overseas cues take the benchmark index beyond the pivotal mark after two years

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Ashish Chauhan, chief executive officer, BSE
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On a day the Bharatiya Janata Party (BJP) triumphed in the Delhi civic polls, the BSE Sensex managed to break out of a range to close over 30000-mark for the first time on Wednesday.

The markets were also lifted by a continued surge in liquidity in the domestic markets, hopes of earnings growth, positive French election results and a likely announcement of tax reforms in the US.

The Sensex closed at 30133.35 on Wednesday, up 190.11 points, while the Nifty closed at 9,351.85, up 45.25 points over the previous close.

The milestones were achieved not before showing some weakness though.

There were more than two losers against every gainer on BSE: 1,956 shares fell and 948 shares rose.

"There is optimism across the globe that is driving markets. In the domestic market, it is the liquidity factor which is making much of the story in the mid-cap and small-cap stocks," Saurabh Jain, assistant vice-president of research at SMC Global Securities, told Reuters.

"We are going through a period of political stability which will be very positive to bring reforms and new investments in the country. Overall, the markets are likely to remain strong with GST implementation just a couple of months away and expectation of normal monsoon this year," said Vaibhav Agrawal, head of research at Angel Broking.

So, what's next for the market?

Experts seem to be in two minds.

While some expect markets to scale new heights for likely continuation of positivity in global markets, some believe the rally is being fuelled chiefly by excess liquidity in the markets, thus advising caution.

Those who believe in further upsides cite that the markets are now trading at a multiple of 17.5 times the FY18 earnings and are yet to touch the peak of 20x witnessed in 2008.

That volatility would be a continued feature in days to come is now being accepted by most analysts.

"We continue to remain positive on the market. Further upside will be dependent on earnings season and liquidity flow. We advise mutual fund investors to maintain staggered and regular investment approach," Harsha Upadhyaya, chief investment officer (equity) at Kotak Mutual Fund, said.

There were words of caution too, even fear of a likely sharp correction of a market not quite backed by strong earnings showing.

"We are unable to fathom the rapid changes in the prices of stocks without any major changes in their fundamentals. It seems to us that the sole investment thesis in some cases is 'liquidity', which is quite bizarre. We can only hope that fundamentals improve sufficiently to support the valuations of stocks," Kotak Securities said in its investment strategy report.

Kotak has reduced its earnings estimates in a few sectors to factor in a stronger rupee and assumption of weaker volume and realisations."We expect further downgrades due to these factors," the report said.

MARKET ACTION

  • 9 Number of major gainers on the 30-share Sensex
     
  • Rs 5,021.73 cr - BSE total turnover in current trading session
     
  • Rs 4,006.89 crore - BSE total turnover in previous session
     
  • 1,954 -  stocks ended lower
     
  • 952 - stocks closed higher
     
  • 139 - stocks were steady
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