high octane. Sensex nudges historic 60,000 mark

The US Federal Reserve indicating that tapering of large-scale asset purchases will end only by mid-2022 and the easing of the Evergrande crisis in China sent India’s market on a roll, with key benchmark index Sensex edging towards the 60,000 mark and the broader Nifty index homing in on 18,000.

Analysts do not think a market peak is in sight, yet, and expect small- and mid-cap stocks to gain more traction in the coming weeks.

Thursday’s mega rally was led by Reliance Industries (RIL), which rose to a new lifetime high as markets went agog with talk of tariff hike by telecom operators.

Sensex gained 958 points, or 1.63 per cent, to close at 59,885. The Nifty index rose 276 points, or 1.57 per cent, to close at 17,822.

Investors were fearing that the US Federal Reserve would announce a definitive date for dialing down the massive asset purchases (of $120 billion every month). However, it said the tapering will begin “soon” and that the process would conclude by mid-2022. In China, concerns related to real estate giant Evergrande eased after People’s Bank of China injected $17 billion into the banking system.

Devang Mehta, Head – Equity Advisory, Centrum Broking, said, “The market took the US Fed statement of starting tapering soon in its stride. Encouraging news on Evergrande crisis also helped to clear some uncertainty on the global front.”

Rohit Srivastava, chief strategist, Indiacharts, expects the Nifty to extend gains and may be heading towards 18,500. A large number of traders were offloading ‘Calls’ (derivatives options contracts) at every higher level. “It indicates that traders are still scared that the market rally could falter any time and are hence giving up their bullish derivative bets to take some profit off the table. But the ‘Calls’ are being bought by the stronger hands and mainly derivative writers, who control the market momentum and direction,” he said.

Short squeeze at play

Analysts say that every time Nifty and Sensex give up a few hundred points, there is gloom and nervousness and traders start building bearish positions. But these bearish bets swiftly get covered as benchmark share prices move up resulting in a short-squeeze. Thursday’s massive rally gave ring-side display of this. At the start of the week, traders turned bearish as news of the Evergrande’s debt woes hit the street. But the the US Fed delaying the taper gave impetus to the bulls in global markets.

Kishor Ostwal, founder, CNI Global Research, said a rally in small- and mid-cap stocks is just starting as earnings are picking up post pandemic. “Ownership in these stocks by domestic institutional investors (DIIs) is at around 7 per cent, which is very low and usually peaks at more than 15 per cent. History says DIIs will turn to small- and mid-caps once the rally in frontline counters takes a breather. In terms of price-to-earnings, the Nifty Small- and Mid-cap indices trade three times higher than Nifty. But currently they are nearly at the same level as Nifty, which means a massive upside is left in markets,” he said.