Indian equities rallied to new highs on Monday as foreign institutional investors (FIIs) continued to bet on a stable coalition at the Centre that will drive reform and kickstart growth. The Sensex gained for the third consecutive session, rising 1.38% or 300 points to end at a new peak of 22,055.45, as political parties ready their manifestos.
FIIs continued to be net buyers of Indian shares for the 10th straight session on Monday, shopping for $241 million of Indian shares — in the last 10 sessions they have brought $2.2 billion to the table. The strong flows into the equity and debt markets have pushed up the value of the rupee. On Monday the currency gained 0.226% against the dollar to end at 60.7875.
India is now the second-best performing market in the emerging markets space, close on the heels of Indonesia; both seem to be favourites of FIIs with India having attracted foreign flows of close to $3 billion and Indonesia $2 billion since the start of 2014.
Brokerages remain cautious on the markets after the smart rally. “We can only continue to emphasise that the global economic cycle drives India's growth far more than who rules Delhi. It is for this reason we caution against extreme euphoria,” Bank of America Merrill Lynch wrote in a report. The brokerage pointed out that Indian stock markets have already received one-third of FII equity flows to EMs. “ It is difficult to see how capital inflows can be much larger given that the Fed is tapering. We have already factored in portfolio inflow of $25 billion in our BoP (balance of payments) estimates assuming the election of another stable government, like 1999, 2004 and 2009,” the report observed.
Last week Kotak Institutional Equities had observed that the risk-reward balance for the Indian stock market is less favourable after the sharp run-up in prices of several domestic cyclical and PSU stocks in the past few weeks. “Earnings upgrades will largely depend on favourable government action in a few sectors, which itself is predicated on a favourable outcome of elections and continuation of economic reforms,” the brokerage noted.
Andrew Holland, CEO, Ambit Investment Advisory, told FE he expected the momentum to continue in the near term. “Even global markets are supportive and there is nothing that will scare the investors at the moment,” Holland said.
Eleven out of 14 analysts FE spoke to expect the Nifty touch