Indian markets ended at record highs for a sixth consecutive session on Wednesday as a strong rupee supported the euphoria. The seven-week-long momentum in equities continued as the 30-share Sensex ended at a life-time high of 22,551.49, up 105.05 or 0.5%, albeit with increased caution on the Street as interest rate-sensitive stocks enjoyed strong buying interest. The rupee closed at 59.8975 against the US dollar, an eight-month high.
The Indian currency has seen a 4% appreciation this year on the back of a surge in capital flow into both equity and debt markets. The combined buying of foreign institutional investors (FIIs) in both the asset classes now stands at about $10.2 billion with their $4.1 billion of equity purchases being the highest in any Asian market.
As a result, India has emerged as the second best performing equity market in the EM peer group, with year-to-date gains of 10.2% in dollar terms.
Interest rate sensitives rallied a day after the RBI left key policy rate unchanged while taking a cautious tone on inflation .
Auto, bank and capital goods indices rallied about 1% each with the auto index touching an all-time high on the Bombay Stock Exchange.
BSE Banking and Capital Goods indices are the best performers this year, having rallied 18% and 11.8% so far, while the Sensex has gained 6.5%. Since mid-February, the Sensex has yielded close to 12% while these two sectoral indices have jumped more than 25%.
Shares of ICICI Bank, HDFC Bank, State Bank of India, Punjab National Bank and Bank of Baroda have rallied anywhere between 26% and 38% since the second week of February.
Punit Srivastava, ED, banking & finance, Daiwa Capital Markets, attributed the recent run-up in banking stocks, especially in the public sector banks, to a combination of a reduction in the overall stress in the industry and an improving macro-environment.
“While the NPA cycle has not peaked yet, incremental fresh bad loans are coming off, especially in the case of PNB and BoB. However, one should be a bit cautious, given that growth — a key variable — is still some way off and the (impact of) the election outcome can’t be totally discounted,” said Srivastava.
In fact, a section of the Street appears to have turned cautious on the rallying cyclical stocks. JPMorgan has warned against chasing “low quality financials and investment cycle related names”, citing the