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The S&P BSE Sensex, India’s key equity index, achieved a historic milestone on Thursday, crossing the 50,000 level for the first time, on the back of a turbocharged rally hugely supported by foreign portfolio investments (FPIs).
The Sensex took a little over 200 trading sessions to move from around 26,000 in March to the current 50,000 levels.
Vaccine boost
FPIs have injected more than $20 billion to purchase stocks in Indian markets since October 2020, after a slew of announcements were made by global pharma companies on the release of Covid vaccines. India’s stock markets have outperformed global peers in rallying from the lows hit in March 2020 due to the outbreak of the pandemic.
On Thursday, the Sensex touched a high of 50,184 intra-day, but closed at 49,624 points after a decline of 167 points, or 0.34 per cent, from Wednesday’s close. The broader index Nifty fell 0.37 per cent, or 54 points, to close at 14,590.
“The historic milestone for Sensex, which comes ahead of the Budget, is a result of sustained economic recovery from Covid-19, and indicates an extremely positive investor sentiment in the Indian market,” said Mohit Ralhan, Managing Partner and Chief Investment Officer, TIW Private Equity.
“The high expectations from the Budget, initiation of the Covid-19 vaccine programme, strong liquidity support and positive backdrop of the newly inaugurated US President have helped the Sensex cross the 50,000 mark.”
Retail participation
Retail participation and equity fund-raising have picked up significantly in the past 3-4 months. Equity issues via IPOs and other routes breached ₹1.4 trillion in calendar 2020, and the pipeline remains strong.
The global stock markets have witnessed an over 30 per cent rally since November post the US presidential election results.
Biden impact
Soon after his win, Joe Biden had announced a record stimulus package worth almost $2 trillion. Also, there are expectations that he will not immediately hike the corporate tax or take any step that willupset the US economy, analysts said.
In India, although the RBI has said the GDP will be minus 4.5 per cent for this fiscal, expectations are that in FY22, the country will see around 10 per cent growth due to a low base effect, experts said.
“The party in stock markets may continue as long as the dollar remains weak. Emerging markets are likely to outperform in 2021,” Shankar Sharma, Vice-Chairman and Joint MD, First Global, told BusinessLine in an interview.
The mood on the street is buoyant ahead of the Budget, as Finance Minister Nirmala Sitharaman has already said it could be among the best in many years.
Budget expectations
There are expectations that the government will try to boost spending by marginal personal income-tax cuts, though this could be balanced by hikes in equity-related taxes.
With the strong market rally, valuations are looking elevated on various parameters — be it price-to-earnings, price- to-book or market cap. Therefore, returns may be subdued in the short term.
“The easy liquidity scenario globally is expected to support valuations for some time, although any change in stance could lead to some market volatility,” said Sampath Reddy, Chief Investment Officer, Bajaj Allianz Life Insurance.
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