By Kunal Bose
Bombay Stock Exchange (BSE) and National Stock Exchange spearheaded Indian stock market has unmistakably remained under the spell of bulls, occasional corrections in some odd sessions always more than made good afterwards notwithstanding. To the delight of who came in early, the S&P BSE Sensex beat the magical 70,000 barrier for some time on Monday while the Nifty 50 took a leap beyond 21,000 and then settled lower at 20,997. Today on December 12, once again it crossed 21,000. The leap of faith in Indian stocks despite two conflicts with serious global ramifications – Russia’s invasion of Ukraine and Israeli stubbornness to punish the Palestinians to no end – that have potential to take further uglier turns, is remarkable.
Inflation here is still a concern and the Reserve Bank of India once again flagged it at its recent monetary policy committee meeting. What is worrying the government is high food prices, particularly vegetables. But the punters thought it would be in order to take inspiration from two positive developments in the US with ramifications for global markets. First, most financial analysts expect the dollar bear trend to pick up a little pace into the second quarter of the New Year as the short-end of the US curve starts to come substantially lower. Second, the growing belief is following the nearly two-year phenomenon of aggressive rate-hiking cycle, the US Federal Reserve is likely to start cutting rates in 2024. Such hypothesis is based on moderation of inflation and renewed resilience of the economy.
According to Goldman Sachs, the cooling of inflation will lead the Fed to cut interest rate twice next year, the first one happening in the third quarter. Here in India, the Repo rate has been kept unchanged at 6.5 per cent in a situation of concern about inflation. The consumer price index (CPI) based inflation estimate for this fiscal remains unchanged at 5.4 per cent while the target remains 4 per cent. The market has come to believe that RBI will hold on to the rate for some more time before starting lowering it, albeit if the inflation is tamed. Yet another low hanging fruit for buyers of shares is the RBI getting emboldened to forecast GDP (gross domestic product) to grow 7 per cent this fiscal against earlier projection of 6.5 per cent. Most domestic and foreign agencies, including the IMF (International Monetary Fund) and World Bank while agreeing that India will remain the fastest growing among major economies in the world have a more conservative growth estimate for this country’s economy.
Yet another factor that is working to the advantage of bulls is the BJP doing unexpectedly well in the three Hindi heartland states, namely, Rajasthan, Madhya Pradesh and Chhattisgarh. All this apart, the flow of money in Indian equities from foreign institutional investors (FIIs) moves the market either way quite a bit. Market observers will tell you about the perceptible change in trading pattern of FIIs more recently to the advantage of Indian equity coinciding with the US treasury yield coming down from a high of 5 per cent to around 4 per cent. The peaking out of US interest rate and the dollar value vis a vis major currencies softening bring good tidings for the market here. Finally, overall perception about the economy and political stability move the market in no small way than macro-economic fundamentals.
Where are the people putting their bets on? Even though prices have scaled high and quite a few large cap shares are trading at 52-week high or all-time high, they still have scope for further advances. Automobile shares continue to do well as sales of two, three and four-wheelers are rising. Particularly encouraging is the support that government owned companies is getting. Everyone wants to have some PSU shares in the portfolio. Even then, the market is yet to realize the rich fundamentals of PSUs such as SAIL and NALCO. (IPA )
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