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Stock market sentiments got a big boost on Tuesday as India’s key benchmark Nifty closed at a new lifetime high breaching the 16,000-level as key indicators such as GST collections, corporate earnings, auto sales volumes and e-way bills indicated a strong rebound in July.
The drop in active Covid-19 cases, pickup in vaccinations and easing of restrictions helped abate the potential headwinds related to a possible Covid third wave, and volatility around the US Federal Reserve’s taper talk.
Top pick
According to market experts, the bourses are nowhere near the peak as India, along with Taiwan and Korea, was turning out to be the top pick of large foreign research houses. “Few foreign research houses that were neutral on India have now turned overweight. In isolation, market valuations may look stretched but on a forward earnings basis, they are nowhere near the peak,” said Gaurav Dua, Senior VP and Head, Capital Market Strategy & Investments, Sharekhan by BNP Paribas.
Amid the Covid gloom and the scare of falling Chinese stock markets, the Nifty rose 1.55 per cent, or 245 points, to close at 16,131 on Tuesday. The Sensex surged 1.65 per cent, or 872 points, to end at 53,823.
Fears around lofty valuations, other global cues related to Covid, China’s crackdown on tech and education companies, and worries over the effect on businesses due to the lockdown situation had kept Nifty and Sensex stuck in a range for six-eight weeks.
Huge buying of Puts
On Tuesday when the Nifty broke the range and hit a new high, many were surprised. Market insiders said there was a huge buying of Puts, which are derivative instruments to take bearish bets. In contrast, mid/small-caps and across-the-sector stocks witnessed buying interest and appreciated.
“The scenario is such that when people should look at 17,000 levels for the Nifty in less than two years, many are just buying Puts at every high level. On Tuesday, between ₹5,000 crore and ₹10,000 crore worth of Puts were added. This is actually pushing markets higher... On a forward earnings terms, markets will still improve and so the rally will continue,” said Rohit Srivastava, chief strategist, IndiaCharts.
India’s retail participation in stock markets at 10 per cent is still way lower than the peak of 20 per cent in 1992, during what is called the Harshad Mehta bull market. Srivastava says there is still a lot of headroom for the markets to move up.
Global cues are also positive. In the US, the 10-year Treasury yields were stable on Tuesday, easing concerns about a slowing economy. The Dow was at a striking distance of a new lifetime high on Tuesday. Global crude oil and metal prices too are at multi-year highs indicating there is no let-up in demand.
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