The Sensex moved within striking distance of 20000 – a level it hasn’t seen since November 5, 2011 – on Monday as headline inflation logged its slowest pace in three years (at 7.18%) and the government deferred implementation of the controversial general anti-avoidance rules, or Gaar, by a good two years.
The BSE barometer closed up 242 points at 19906.41, while rival Nifty of the National Stock Exchange ended up 72.75 points at 6025.05.
Among the sectors, oil and gas, IT, realty and metals were the top gainers.
Easing inflation gives more room for a reduction in key policy rates by the Reserve Bank of India (RBI) when it meets on January 29 to review monetary policy for the quarter. The central bank is widely expected to cut rates by as much as 100-125 basis points over the next few quarters.
That, in turn, could lift interest-sensitives such as banking and financial services.
The deferral of Gaar to 2015-16, on the other hand, is seen resulting in bigger inflows from foreign institutional investors (FIIs) in months ahead.
Given this, over the next 4-6 months, the index could cross 21500, according to three experts – Sandip Sabharwal, CEO, Prabhudas Lilladher, Nitin Jain, head - retail capital market, Edelweiss Securities, and A Balasubramanian, CEO, Birla Sunlife AMC – DNA Money spoke to.
Besides RBI’s policy stance, corporate earnings and the Union Budget are expected to be the main drivers.
“The central bank’s monetary policy and the Union Budget will be the two delta points in which market is going to revolve around. In a 6-12 month time horizon, market is extremely bullish. Also, we expect the corporate earnings to be in the range of 14-16%,” said Jain.
“We believe that a turnaround will happen as a result of policy initiatives from the government and mean reversion happening in fiscal consolidations. Also, assets classes like gold and real estate that we have seen outperforming for the last 10 years may underperform as they have taken the valuation of the other classes above the median average of the equity market,” said Balasubramanian.
But there’s a caveat, too. Volatility could rocket if things do not go as expected, the experts cautioned.