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The Indian stock market has seen one of its finest bull run in nearly a decade as the BSE Sensex and Nifty of the National Stock Exchange (NSE) rose 73 per cent in less than eight months since one of the worst stock market crashes in March on the back of Covid-19lockdown. But when the Nifty, India’s top traded derivative index, reached the 13,000 mark on Tuesday, there was more shock and awe in the markets than the usual cheer.
“The rise in banking stocks shows as if the economy is back to 7-8 per cent growth, which is a fallacy. Nevertheless, the markets have gone up so much so fast that a 10-15 per cent fall from the current levels will be completely ignored and it would not pain anybody. We do not see any major fall in markets beyond this level. Talks of more and more liquidity is now driving the markets,” said Rahul Arora, CEO, Institutional Equities, Nirmal Bang Securities.
On Tuesday, the Nifty index closed at 13,055 and the Sensex at 44,523. The rally has been mainly led by banking stocks. The Bank Nifty index is up more than 75 per cent since its collapse in March. Around 50 per cent of the gains for the index has just come in the past two months.
Cash market
In the cash market segment, the foreign portfolio investors (FPIs) purchased stocks worth ₹1,11,104 crore (approximately $14.81 billion considering dollar at 75 v/s the rupee) since April 2020 till date. In this ₹55,552 crore came in the month of November alone, especially after the US elections. In the derivative segment, the FPIs have been net sellers in the index futures segment to the tune of ₹2,522 crore since April till date. In the stock futures segment, the FPIs have been net sellers worth ₹14,071 crore during the same time. The combined selling in the derivatives segment of FPIs is around 15 per cent compared to their net stock purchases in stocks since April, data shows.
“Nifty rally is witnessing loss of momentum. Mid-cap and small- cap stocks are attracting much liquidity as of now. Investors should be cautious as the elevated put/call ratio is near the January 2020 levels and can be an early indication of a market top,” said Rohit Srivastava, Strategist, IndiaCharts.
Arora is of the view that the indices Nifty and Sensex are trading approximately 17 times forward to their financial year 2023 earnings and nearly 21 times their financial year 2022 earnings multiple.
“Indian market long term price to earnings (PE) is about 15 times its earnings but we are currently trading 20-25 percent premium to that,”said Arora.
The global stocks have rallied this week on the back of speculation and then news that former Federal Reserve chairwoman Janet Yelen will be made Treasury Secretary (equivalent to Finance Minister) in President-elect Joe Biden’s Cabinet. Yelen, as Fed chair, was a pioneer who had unleashed large amount of liquidity in the financial markets by printing dollars before Donald Trump replaced her with Jerom Powell.
In the US, the Dow Jones, S&P and Nasdaq are all trading at their life-time high levels on anticipation that Fed would unleash more liquidity to deal with Covid economic damage and all that money will flow into equity and commodities. Gold and silver are making new life time highs for the past several weeks. China’s Sanghai markets are trading at their 5-year high.
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