Sensex scales 25,000, Street asks for more

Tags: News

Big gains in metal, FMCG, oil and IT blue chips propel index

Equity bellwether Sensex on Thursday scaled 25,000, the psychological landmark it had kissed twice earlier on the election results day on May 16 and the day the NDA government took office on May 26, only to close lower on both the occasions.

Big gains in blue chips from the metal, oil & gas, IT and FMCG sectors propelled the 30-pack index by 213 points, or 0.86 per cent, to 25,019. It was the first close above the 25,000 mark in the lifetime of Sensex, which swung about 400 points between the day’s low of 24,644.88 and high of 25,044.06 in volatile trade.

The broader Nifty index too closed at a record high of 7,474.10 with a gain of 71.85 points.

After trading in the red briefly, the market regained ground in the last two hours of trade. Sensex is India’s most widely tracked equity benchmark and was constituted in January 1986 as a means to measure the overall performance of the exchange with a base value of 100 with 1978-79 as the base year.

The index crossed the 1,000 mark on July 25,1990 and took 24 years to gain 24,000 points. In 2014, the index has seen rapid rise, traversing from 22,000 to 25,000 within a few months.

Some analysts expect the equity benchmark to breach 30,000 by the year-end while some others project it to hit that mark as early as the budget day this July.

“We may see Sensex at 30,000 before the budget,” said Motilal Oswal, CMD of Motilal Oswal Financial Services.

“The next few years would be very bullish for equity investors. A strong and decisive government is expected to kickstart the economy and push reforms very aggressively. Already lots of things are visible on the ground. I expect the market to touch newer heights,” he said.

Karvy Stock Broking estimates Sensex to touch 1,00,000 by 2020. “If the infrastructure cycle revives quickly, the earnings growth revival will be faster with even 25 per cent CAGR looking possible. A multiple re-rating is also possible as the cost of equity falls in the next few years with the decrease in risk-free rate. An earnings growth between 20 per cent and 25 per cent and multiple PE re-rating from 15 times to 16-17 times in the next few years can lead to a 25 per cent compounding Sensex returns, which will take it to the 1,00,000 level by calendar 2020,” Varun Goel, head of PMS at Karvy Stock Broking, said in a report.

Foreign institutional investors, who have been the biggest buyers of Indian equities worth $7.67 billion since March 1, have helped the index rise 19.44 per cent from 20,946 at the start of March to 25,000 in just over three months.

On Thursday, FIIs were net buyers of equities worth Rs 1,368.97 crore while domestic institutions sold stocks worth Rs 425.79 crore. Some analysts are worried, as the domestic investor base still doesn’t share the same level of optimism, though retail participation has started in some measure.

Dipen Shah, head of private client group research at Kotak Securities, said the optimism over the forthcoming Union budget and future growth potential remained high. “The monsoon progress and the budget are going to be two important triggers for the market. A progressive budget as well as other reform initiatives will likely lead to continued outperformance in Indian equities vis-à-vis their emerging market peers,” he said.

BSE midcap and smallcap indices also rallied and outperformed Sensex with 1.01 per cent and 1.42 per cent gains. “Market participants are ready to give higher valuations to the beaten-down midcap stocks, which are expected to see relatively higher growth, once the recovery sets in,” Shah said.

Heavyweight stocks that helped the index cross the 25,000 mark included Sesa Sterlite (up 6.50 per cent), Tata Motors (3.11 per cent), Infosys (1.48 per cent), Hindustan Unilever (4.27 per cent) and ONGC (2.01 per cent).

The BSE metal index was the biggest gainer, rising 3.33 per cent, followed by power (up 1.96 per cent) and oil & gas (1.96 per cent) and FMCG (1.49 per cent) indices. Oil & gas shares gained momentum on news that international crude prices have dropped and the government plans to cut subsidy on LPG.

Shares of oil marketing companies gained sharply, led by BPCL (6.95 per cent), HPCL (5.20 per cent) and IndianOil (3.89 per cent). Other oil & gas companies in exploration and production business also gained, with Oil India rising 2.33 per cent and Cairn India 4.07 per cent.

The oil marketing companies have been relentless in raising diesel price since January 2013 with the latest hike driving down under-recoveries to nearly a four-year low, Barclays analysts Somshankar Sinha and Pooja Gupta wrote in a June 5 report.

“As monthly resets continue, we expect the overall under-recoveries to fall 36 per cent by FY16 from Rs 1.4 lakh crore in FY14, raising the possibility of a firm resolution of the subsidy issue for the first time in over a decade,” they said.

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