The Sensex reclaiming the 18,000-mark has brought cheer among investors, but shaky fundamentals are likely to act as a dampener for the equity barometer to scale higher peaks.
The 30-stock index, which closed above the 18,000 level for the first time since February 23 on Wednesday, added another 21 points to finish at 18,021.16 on Thursday, as investors remained cautious ahead of the US Federal Reserve meeting's outcome later in the day.
Even as sectors like fast-moving consumer goods, pharma, information technology and banking have lifted the Sensex from the lows of around 15,358 points in January to the present levels, experts are sceptical about the sustainability.
“While the markets could benefit near-term if we get a ‘risk-on’ rally globally, we are sceptical on the sustainability of any sharp rally, especially if we get a rise in global commodity prices. In fact, we are worried it could hurt India’s already fragile economy,” said Jyotivardhan Jaipuria, head of India research at Bank of America-Merrill Lynch, in a strategy note to clients. “We continue to expect markets to remain range-bound, with a weak economy, earnings and reasonable valuations providing an upper cap to markets.”
The current year has so far been a roller-coaster ride for Indian equity markets. The Sensex gained over 3,000 points in a short span of two months early this year. It surged from the lows of 15,518 points in early January to 18,523 points in February. But the rally failed to sustain and the index touched the lows of 15,748 in June.
“There were several issues like policy limitations, peaking of interest rates and global factors affecting markets to turn weak during the early part of the year. But recently foreign institutional investors (FIIs) have increased their activities in Indian markets and in the short term, it may benefit the markets,” said G Chokkalingam, chief investment officer, Centrum Wealth Management.
More From This Section
Analysts have pinned their hope on government measures on economic reforms. "We are optimistic about government reforms. There are critical policy decisions like foreign direct investment in retail, fuel price decontrol and infrastructure spending that can help domestic investment scenario, thereby boosting markets," said Chokkalingam.
Hindustan Unilever Ltd gained from Rs 402.40 on January 2 to Rs 546.60 on Thursday, rising by over 35 per cent. Similarly, ITC Ltd gained close to 36 per cent from Rs 198 on January 2 to Rs 269.70 on September 13.
| BULL RUN | |||
| BSE price in Rs | Jan 2, ‘12 | Sep 13,‘12 | % change |
| Sensex (points) | 15,517.92 | 18,021.16 | 16.13 |
| HDFC Bank | 427.20 | 597.85 | 39.95 |
| ITC | 198.40 | 269.70 | 35.94 |
| HUL | 402.40 | 546.60 | 35.83 |
| TCS | 1,178.25 | 1,415.40 | 20.13 |
| SBI | 1,629.65 | 1,867.45 | 14.59 |
| Reliance Inds | 706.95 | 798.25 | 12.91 |
| Sterlite Inds | 90.45 | 94.35 | 4.31 |
| Hindalco Inds | 112.25 | 109.35 | -2.58 |
| Data compiled by BS Research Bureau | |||
On the IT front, Tata Consultancy Services Ltd gained from the lows of Rs 1,178.25 in January to Rs 1,415.40 on Thursday, a rise of over 20 per cent.
Among the banking stocks, HDFC Bank witnessed a rise of close to 40 per cent from Rs 427.20 to Rs 597.85 on Thursday. Public sector lender State Bank of India surged from Rs 1,629.65 to Rs 1,867.45, up by around 15 per cent.
Among those which remained under pressure during the year include capital goods, mining and energy companies. India's largest private sector player, Reliance Industries Ltd fell from Rs 706.95 in January to Rs 798.25. Similarly, mining major Hindalco Industries fell from Rs 112.25 to Rs 109.35 on September 13.
“The recent rally will not sustain much, as there is no fundamental support to the sectors,” said Madhumita Ghosh, vice-president, research (equity), Unicon Financial. “Markets have become shallow. In the long run, it doesn’t appear to sustain this rally.”