The Indian benchmark indices on short intervals are hitting all-time high levels. The sentiment among investors has turned bullish and they are expecting the Indian markets to rally another 5-10 per cent in the run-up to Diwali. A mix of global and domestic factors is pushing the benchmarks to newer highs:
1. US markets at record high
The US markets are at all-time high on the back of strong liquidity in the system. There are reports that the US economy will remain on a strong growth path.
Investors are betting on a fresh monetary stimulus by the European Central Bank to boost euro zone economy. ECB chief Mario Draghi has said the ECB is ready to do more, if necessary, to bring the economy back on growth path. The additional liquidity is likely to enter emerging markets, including India.
Meanwhile, the US Federal Reserve is expected to wind up its bond purchase stimulus programme in October. Investors are waiting for signals from the US Federal Reserve on interest rates hike.
The Wall Street the S&P 500 hit an all-time high and reached above the 2,000 mark for the first time.
2. GDP growth at 6 per cent
The pick-up in industrial production and approval for stalled projects are expected to give a push to India’s GDP.
The recent measures to clear projects, focus on inflation control and opening up of FDI in insurance and defense are some of the positive steps taken by the government. Expected supply side reforms will result in a gradual recovery in economic growth. The IIP data has improved in the last three months and will aid GDP growth recovery.
Overall, the lead indicators are also suggesting that growth activity is picking up. The automobile sales have gone up. Sharp rebound on the manufacturing, mining and electricity front is observed. The sense is that for the whole year, we might see the growth recovery.
3. Middle East stability
Even as the Middle East is witness to escalating violence in Libya, Iraq and Syria, there is some hope after Israel and Palestinian fighter group Hamas agreed on an open-ended cease fire.
After bombardment for more than seven weeks with heavy artillery, peace and normalcy was back in Palestine. Israel has agreed to ease the blockade on Gaza and open border crossings for aid to pass through. It has also extended the fishing limit off the coast to 6 miles, according to a senior Egyptian government official.
There are reports that the US may attack militant group ISIS in Syria. US military intervention may soon push the ISIS militia, which have been consolidating their positions and gaining ground support, on the defensive.
This will stabilize the crude oil prices, which have seen a sharp correction in the last few weeks. India is likely to benefit from it as it will have a positive impact on curtailing CAD and inflation.
4. Hopes from Modi government
The new government at center, since taking charge, has been taking correct measures in terms of policy and economic decisions, say experts.
Macquarie has assessed the new government’s performance on a metric based on 1) Economics, 2) Foreign Policy, 3) Governance and 4) State relations/Parliament Productivity/ Politics.
“Based on this metric, the government has scored a healthy 8.5 out of 10,” the report said.
“Markets have broken out of range on the upside. With the results season out of the way, focus will be back on economic data which continues to improve,” the report added.
Enthusiasm is mainly driven by the leadership change at the country level. The Modi government has completed 100 days and the investors’ mood is a lot more buoyant.
According to the experts, “The new government has been a tremendous fillip to the country because it is not fragmented. It has got a mandate to govern and if they manage to implement some of the policies, there is no reason why the Indian stock market has not got a little bit more juice in the tank,”
5. Bullish sentiment
The market experts are bullish on the Indian markets and they are expecting the Nifty to continue with its upward momentum at least till Diwali.
The Indian market has been contracting for the last few sessions and building up energy for a big move now. Fund managers believe that Market is in the equilibrium and waiting for fresh information on reforms. It is positioning itself for a large move and that will probably need some sort of a trigger. As long as we are above 7,850, there is an outside chance the breakout should remain on the upside. Till then assume that the odds remain on the upside.
Technical analysts remain bullish on the market and expect the Nifty to hit 8,500 before Diwali. They expect a correction to set in after this level is achieved.
6. Rate cut by RBI
The market is accepting the bad news with chins up. The RBI commentary in its previous policy meeting signaled that rates may remain high until inflation is brought under control.
This didn’t result in any sharp correction in the Indian market. Investors are optimistic that most of the negative news flow is out of the system. The auto sales volume has already shown movement and with rates coming down early next year, things will be much better for the economy.
The market does not expect interest rates to come off very soon, but from Feb-March next 2015, interest rates should be on the way down and the focus should be on sectors which will benefit if there is a cyclical uptrend. Analysts see GDP growth pick up to 6.5-7-7.5 per cent in the next 18 months.