MUMBAI: The Nifty jumped to life highs on Tuesday after the BJP’s thumping win in the crucial state of Uttar Pradesh rekindled hopes of a bigger-than-expected push for reforms by the Narendra Modi government.
The Nifty, up 11% so far this year, crossed its previous life high of 9,119 to hit 9,122.75 before ending the day 1.71%, or 152.45 points, higher at 9,087. This is the index’s biggest single-day gain in points since February 1 and caps a strong rebound since the December 26 low of 7,893 on demonetisation worries.
The Sensex surged by 616 points, or 2.12%, intra-day before ending the day at 29,442.63, up 496.40 points. This is its biggest gain since May 25 last year. The index is the best performer among all developed and emerging market indices in local currency terms in the past three months.
The rupee surged 79 paise to a 16-month high of 65.82 to the dollar as exporters sold more dollars and foreign investors bought local shares. BSE data showed that foreign investors bought local shares worth Rs 4,089 crore, their biggest single-day purchase since February 17 when they purchased Rs 8,059 crore.
FPIs have bought shares worthRs 23,132 crore since January this year against net sales of Rs 9,800 crore in the same period last year. The BSE Midcap and Smallcap indices gained 1.44% each.
“One must be ready for a correction after a rally but I am optimistic about the medium to longterm prospects,” said Motilal OswalBSE 0.17 %, chairman, Motilal Oswal Financial Services LtdBSE 0.17 %. “Fundamentally, valuations are comfortable at this point in time because of good corporate earnings growth. In the short term, markets may remain volatile.”
BJP romped to victory in UP on Saturday, winning 312 out of the 403 seats. Its allies won 13 more taking the NDA tally to 325. This is the biggest win recorded by any party in the state since 1977 and has raised prospects of the BJP doing well in other elections this year and next. Many political pundits also believe that the victory has improved Prime Minister Narendra Modi’s chances of retaining power in the 2019 general election.
Barring the metals index, all other sectoral indices on the NSE ended with gains on Tuesday. About 55 stocks, including Titan, Jubilant Life SciencesBSE -1.71 %, Kotak Mahindra BankBSE 0.56 %, IndusInd BankBSE -0.07 %, YES BankBSE -0.29 % and Indiabulls Housing Finance among others, hit life highs while 92 stocks were locked in upper circuit with no sellers.
“With the sharp rally, the market which is currently susceptible to global risk is trading at above average multiples and we stay cautious near term,” said Sanjay Mookim, India Equity Strategist, BofA Merrill Lynch. “India’s business cycle should improve over the next several quarters while improving construction should drive capex which is good for equities.”
Some market experts are divided over the near-term outlook as indices have begun to look expensive at current valuations. Plus, there is no immediate trigger for upgrade.
“Valuations of the Indian market are quite high and would require the support of strong earnings growth. Any disappointment on earnings will make valuations look even more expensive, which the market may not like,” said Sanjeev Prasad, senior ED and co-head of Kotak Institutional Equities.
“Global and domestic interest rate cycles are no longer supportive with likely increase in developed markets bond yields.”
“While markets are expecting a rate hike this meeting, what will be of more interest is the commentary,” said Dipen Shah, senior V-P, PCG research, Kotak Securities. “If it is hawkish, it may have an impact on fund flows to emerging markets but India may be relatively less impacted because of the continuing domestic flows.”
“Notwithstanding the election results, we believe the risk-reward is not favourable currently and advise investors to sell into this rally. We expect Nifty EPS to rise 15-16% in FY18, and see no trigger for an earnings upgrade at this juncture,” Religare Institutional Research said in a note.