Saffron wave lifts stock market to all-time high

Tags: Stock Market

Sensex jumps 1.5% to 21,326; analysts bet on short-term rally

Saffron wave lifts stock market to all-time high
Dalal Street created history on Monday, lifting Nifty and Sensex by more than 1.5 per cent to new highs in celebration of the BJP win in the state elections.

But there was no bubble yet and nor euphoria among small investors. Experts say that at a price-to-earnings multiple of 14, market valuations are still below the historical 16 times earnings.

Nifty index closed at a new high of 6,363.90, topping its previous high recorded five years and 11 months ago.

In the process, Nifty gained 104 points on the day, or 1.66 per cent. Sensex too closed at a new all-time high of 21,326.42, gaining 329.89 points or 1.57 per cent on the day.

The day’s start saw both indices zoom to still higher levels — Nifty peaking to 6,415 and Sensex to 21,483.74. But profit taking later during the day led to some paring of the gains.

Foreign institutional investors were net buyers of equities worth Rs 2,473.17 crore, one of the highest single-day purchases in recent times. With the day’s buying FIIs are net buyers of nearly $18 billion. Domestic institutions were net sellers of Rs 1,205.81 crore.

Elsewhere, global markets were also in positive territory with Japan’s Nikkei giving 50 per cent returns this calendar year.

Back home, Rajat Rajgarhia, MD in charge of institutional equities at Motilal Oswal Securities, in a report on the state elections said, “Growth and governance is a loud message of Indian state elections over the last three years. While markets are at new highs, valuations at PE of 14 times are still below averages. As growth expectations start turning positive, earnings recovery will drive re-rating.”

“Hopes of a decisive political mandate is necessary… and recent events have kept these hopes alive. Several sectors are significantly below their highs of past three years. These sectors will benefit once the investment climate improves as there is a lot of headroom for them on both earnings and valuations,” Rajgarhia said.

Since UPA-II came to power in May 2009, Sensex has given 44 per cent returns. Still, Sensex valuations are at 14.4 times, below the average of 15.8 times.

Nandan Chakraborty, MD of institutional equity research and Sachchidanand Shukla, senior VP Axis Capital, in a strategy note said, “We expect a short-term rally… Hopes now revive of a new and stable government at the centre, stanching further self-goals that India has been mired in of late.”

“The ruling party, fire-fighting to avoid a rating downgrade, will be helped this year by the economy’s worst being behind us with a good monsoon, resumption of oil buying from Iran, pre-electoral party spends. However, this will get tempered by some immediate profit taking, paper supply (divestments), Fed taper fears (the markets have been FII driven), risk of populism by the Congress,” Chakraborty and Shukla said.

Most analysts expect Nifty to trade above 6,000 in the near term. Foreign brokerage Macquarie predicted Nifty to rise to 7,200 in 2014-15 based on 15 times PE re-rating.

On the day National Stock Exchange’s volatility index, India VIX, a measure of the market’s expectation of its own volatility in the near term, the market fell by 13.73 per cent to 19.6 per cent.

Further, analysts expect better performance by certain sectors in the hope of major reforms going through after a new government takes over next year.

Amar Ambani, research head of India Infoline, said, “Strong results for the Bhartiya Janta Party in the state elections in Delhi, Rajasthan, Madhya Pradesh and Chhattisgarh led to a sentiment boost for the domestic market; most investors are hopeful of major reforms if National Democratic Alliance wins the general elections.

The oil and gas sector has been one of key focus areas in the previous NDA regime. The recent strength in the rupee will lead to a decline in under- recoveries for OMCs.”

Bombay Stock Exchange’s oil and gas index gained 1.71 per cent. Among the Sensex gainers were Reliance Industries (1.30 per cent), Oil and Natural Gas Corporation (3.48 per cent), Hindustan Petroleum Corporation (4.99 per cent) and Oil India (3.94 per cent). Bombay Stock Exchange’s bankex (2.93 per cent), capital goods index (3.14 per cent) and realty index (2.61 per cent) were top sectoral gainers.

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