DSIJ Mindshare

Indian Markets Enter New Orbit

Indian equity markets staged a smart recovery on Monday, to ease past the losses over the past two trading sessions. And with such a smart up-move both the benchmark indices managed to hit a new all time high mark. While the Sensex and the Nifty gained a percent each. The 30- share Sensex closed at a record high of 27,320, up 293 points and the Nifty scaled a peak of 8,174 up 87 points. About 2075 shares have advanced, 956 shares declined, and 93 shares are unchanged. Meanwhile, broader markets surged with the small cap index up 2.1% and the midcap index advanced 1.3%, keeping its outperforming trend intact.

One of the important factors which helped the Indian equity markets enter the new orbit is lower Crude oil prices which after a gap of 14 months declined to below USD 100 per barrel mark. We have been consistently saying that, Indian being a importer of Crude and crude forming a majority of raw materials, the decline usually adds to the bottomline of companies. We are of the opinion that the declining crude prices would not only result in reduction in prices of raw material but also in terms of transportation cost as Diesel prices are likely to decline. Reduction in transportation cost also results in controlling inflation as it forms a major part of adding to the cost.

While decline in Crude prices is one factor, other factors like consistent inflow of FIIs and positive cues from the global markets are also adding to the bullishness in markets. And with such positivity in the markets, it is no wonder that the broking houses and research houses are coming out with aggressive targets for Sensex and Nifty. Apart from this, an expectation that under the current Prime Minister, India has potential to grow at 8-9% has added to the comfort levels. On the FIIs part, we are of the opinion that the flow is likely to continue going ahead with other countries witnessing problems. While Russia has got issues related to Ukraine, China is facing problems related to possible realty bubble. Brazil is also facing problems related to growth. As a result India seems to be a favorite destination in near to medium term.

While this is the story on domestic front, a lot is happening on global front as well. In US markets, The Standard & Poor’s 500 Index fell, after a five-week rally sent the gauge to a record, as declines in energy companies along with oil prices overshadowed a rally by Yahoo! Inc. The S&P 500 (0.31%) retreated 0.3 percent to 2,001.54 yesterday. The Dow lost 25.94 points, or 0.2 %, to 17,111.42. The Nasdaq 100 Index added 0.1 %, led by Yahoo. Experts suggested that, The US Fed is gauging the strength of the labour market as it winds down a bond-buying program and considers the timing of raising interest rates. Policy officials’ next meet is on September 16-17. Low volatility across financial markets may signal investors are underestimating how quickly the US Fed will raise interest rates.

As for Asian indices, Japanese Nikkei is trading with gains as weaker Yen helped the export stocks in Japan. Nikkei is trading with gains of 0.27 % (Trading at 15747). Hang Seng and Shanghai Composite however are trading with marginal losses.

SGX Nifty however is providing positive signals and is trading in green with gains of 9 points to trade at 8200. We are of the opinion that, Indian markets today are likely to open on a positive note and we would not be surprised if Nifty touches the 8250 mark. As expected Midcap and small cap counter are likely to outperform. But one needs to be cautious now as most of the mid cap stocks are getting overvalued.

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