Why has the BSE Sensex and Nifty suddenly turned bullish after a lull? Is the trend likely to continue for sometime? Does it indicate a more positive outlook on the GDP growth of Indian economy?
These are some of the questions being asked by investors as both Nifty and BSE Sensex scaled new records on Thursday trading. On Friday trading, Nifty is up 0,63% at 11,238 while BSE Sensex is up 0.78% to Rs 37,271.84.
There could be certain reasons behind the present rally. One is that Indian economy is poised for a growth rate of 7.5 percent in 2018-19 and set to become the fifth largest economy in the world, according to Arun Jaitley, Finance Minsiter.
Secondly, although Index of Industrial Production (IIP) had shown its lowest growth rate in May compared to previous 7 months, it still was positive. The Goods and Services Tax (GST) Council had reduced the GST rates for 88 items including footwear, refrigerators and washing machines making the Small and Medium industries more competitive.
The fall in crude oil prices should give some relief to the economy not only in terms of forex outgo, lowering cost of operations for businesses and may be a positive impact on inflation. The strenghthening of the Rupee against Dollar could also cushion the impact of rising trade deficit.
The Monetary Policy Committee of Reserve Bank of India which which will have three day deliberations beginning on July 30 and possibly announcing a repo rate hike of 25 basis points in view of the rise in consumer inflation amidst a retraction in industrial growth.
In the past few months, the stock market was hit hard by the slump in small and mid cap stocks. Currently, investigations are on regarding the mid cap stocks and trying to nail the people behind this crash. There is no some positive trend in the beaten down mid cap and small cap stocks, according to Angel Broking. Even as the investors may be happy about the present rally, it is not broad based as it is confined to a few major stocks. Since January major movements are in large cap stocks such as Tata Consultancy Services, Hindustan Unilever, HDFC, HDFC Bank, Infosys and Reliance.
Foreign Institutional Investors (FIIs) have been net sellers while domestic FIs haven’t been active in the market offlate although mutual funds have provided good support so far this year.
It is only a matter of a few weeks before Nifty will cross the 12 K barrier while BSE Sensex may hit the 38000 mark. The current rally is also driven by public sector and private sector banks for whom the rise in interest rates may be good news in the coming quarters. The Q2FY19 corporate results are also encouraging with 55% of the companies (out of a total 220 results) reporting positive results while 35% have reported neutral trend. This is seen as sign of improving business sentiment. The June PMI (Purchasing Managers Index) was also positive showing a potential for industrial growth across segments.
In a nutshell, the present bull run reflects the positive trends in GDP growth and overall business sentiment in the economy. Some volatility can be expected in the market in view of the impending general elections in 2019.The government is likely to come up with a new electronics policy and globally easing of trade war threats following US President meeting with European Commission should augur well for the markets in the medium term.