Sensex and Nifty Scale all-Time Highs
The Nifty reached an all-time high of 19,003.20 points, while the benchmark Sensex reached a record high of 64,012.16 points. Analysts believe that because the market has already taken them into account, the advance in Indian shares is unlikely to be impacted by a prospective Fed hike or a weak monsoon.
On June 28, Indian markets reached a record high thanks to consistent, substantial inflows from international institutional investors. Investor sentiment was also encouraged by the reduction of the current account deficit.
The Nifty reached an all-time high of 19,003.20 points, while the benchmark Sensex reached a record high of 64,012.16 points. At 1:30 pm, the Sensex was up 561 points, or 0.88 percent, to 63,977 points, and the Nifty was up 177 points, or 0.94 percent, to 18,994.74.
“The Nifty finally succeeded in crossing its previous highs after attempting to do so multiple times over the past few days. The domestic market reached record highs due to strong institutional inflows, positive macroeconomic conditions, and robust earnings growth, according to Siddhartha Khemka, MOFSL’s head of retail research, broking, and distribution.
The market surge was supported by a number of factors, including some macroeconomic fundamentals and other market changes. Let’s look at it.
In the months of January through March, India’s current account deficit (CAD) decreased to just $1.3 billion, thanks in part to falling oil costs and a rising services industry. India recorded an all-time high services trade surplus of $39.1 billion. In terms of a share of GDP, CAD for the period of January through March 2023 was 0.2%, down from 2.2% in the preceding quarter and 1.6% in the prior similar quarter.
In the second half of 2022–2023, India’s external balance swiftly improved, causing economists to repeatedly lower their predictions for the current account deficit. Rahul Bajoria, head of economics at Barclays, projects a decrease in the current account deficit to $40 billion, or 1.1 percent of GDP, in FY24 and a modest uptick to 1.2 percent of GDP in FY25. Emkay predicts that in FY24, the CAD will reduce to 1.4%.
Analysts anticipate that the reduction in the current account deficit will continue, driven by a gradually improving trade imbalance in the face of falling commodity prices, particularly oil, and an easing of both domestic and international demand. They added that the merchandise trade deficit will continue to be somewhat offset by a strong, albeit declining, services (non-software) trade surplus.
Delay in US Recession
Recent data indicated resiliency that delayed the likelihood of a recession by revealing an unexpected strength in different US economic sectors. The annual rate of new home purchases increased significantly, above expectations, according to reports on Tuesday. Orders for durable goods also outperformed expectations, and consumer confidence rose to its highest point since the start of 2022. For the third consecutive month, US housing prices have increased on a monthly basis. These trends paint a favorable picture of the US economy and imply that any impending recession would be delayed.
RBI Pause on Rate Hikes
In the bimonthly monetary review of the rate-setting panel on reducing inflation, the Reserve Bank of India held the main policy rates steady for a second time. The central bank’s action helped lift market mood.
FII Buying Binge
The greatest inflow into Indian shares since December 2020, $10 billion, came from foreign institutional investors in the June quarter as a result of strong profit growth and positive macroeconomic indicators, according to analysts.
In comparison to their respective 10-year averages of 18.2x and 17.5x, the Sensex and Nifty one-year future price earnings are presently trading at 19.1x and 18.4x, respectively. The current valuations, according to analysts, are fair.
Everyone is interested in learning whether the India rally will continue. The US Federal Reserve has room to resume its cycle of rate hikes in the upcoming month because to strong macroeconomic statistics in the country. El Nio is emerging as a significant weather disruption, raising growing concerns about the progress of the monsoon across the nation. Geopolitical factors on a global scale are also in play.
However, the majority of analysts appear to be optimistic about the rally’s strength. They claim that because the market has already taken these into account, the advance in Indian shares is not expected to be impacted by a hypothetical Fed rate increase, a weak monsoon, or geopolitical unrest.
“The main cornerstones of this rally are superior profits growth and consistent flows. According to Devarsh Vakil, Deputy Head of Retail Research at HDFC Securities, “We think that as long as these two cylinders are firing, our markets are likely to keep surpassing new highs and generate superior returns for investors who believe and keep faith in India’s growth story.”
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