Nifty top 18,000 pts a day after IMF's bullish economic forecasts for India

The Nifty50 closed at 18,162, up 170 points, or nearly 1%, extending its year-to-date gains to 30%

The benchmark Nifty50 index closed above the 18,000 mark for the first time on Wednesday, a day after the International Monetary Fund (IMF) projected that India would retain its fastest-growing economy tag with an estimated gross domestic product (GDP) growth rate of 9.5 per cent in FY2022.

The index, which tracks the performance of India’s top 50 blue-chip companies, rose for the fifth straight trading session and logged a record high for the fourth consecutive session.

The Nifty50 closed at 18,162, up 170 points, or nearly 1 per cent, extending its year-to-date gains to 30 per cent. This makes India the best-performing major market in the world this year. The Sensex, on the other hand, ended at a new high of 60,737, up 453 points, or 0.75 per cent, with the market cap of all listed stocks on the BSE topping Rs 270 trillion.

“The Nifty at 18,000 is a reaffirmation of the wider structural potential of the Indian economy and its relative strength vis-à-vis other economies and equity markets,” said Rahul Bhuskute, chief investment officer of Bharti AXA Life, who oversees investments of Rs 10,000 crore.

“According to the IMF forecast, India would be the fastest growing major economy next year. Of course, in the shorter term, there has been help from abundant liquidity, broader positive sentiment due to the success of IPOs, as well as an almost consensus belief that the much-awaited capex cycle and real estate cycles are likely to get going finally,” Bhuskute said.

The latest gains in the domestic market have come even as other global peers have faltered amid concerns over stagflation, turbulence in China, and a surge in energy prices. A similar story played out in August, when the Indian markets surged more than 15 per cent despite the MSCI World Index remaining almost unchanged during the period.

“Risk-off sentiment gripped global equity markets amid several uncertainties like the China slowdown, US debt ceiling, and stagflation fears. However, Indian equities remained resilient and outperformed all major global indices supported by continued inflows, government relief measures for ailing sectors, improving vaccination and steady daily Covid-19 cases,” said Jitendra Gohil, head of India Equity Research, Credit Suisse Wealth Management.

The Nifty had started 2021 at 14,000, with forecasts of single-digit returns for the year amid an uncertain economic environment. However, the market has managed to surprise even the most-bullish analysts on the Street.

Experts said the bullishness in the market had resulted in record fundraise by way of IPOs, encouraged mergers and acquisitions, and brought cheer to India Inc. Investors' wealth has soared over Rs 81 trillion so far this year.

Analysts now see drivers in place for the market to rise to even higher levels in the medium to long term.

“The Indian economy has shown strong resilience from the jolt of the second wave of Covid. All dots are coming together with normal monsoon, strong tailwind in IT services, improved visibility on PSU divestment post sale of Air India, improving standing of Indian companies, high probability of private sector capex to kick start and digitisation wave sweeping across with fintech, consumer tech and EV-led transformation. Although some of these factors will play out in the long term, India looks set for new growth horizons in the coming years,” said Amnish Aggarwal, head of research at Prabhudas Lilladher. The brokerage has a base case and bull case one-year target of 19,079 and 21,360, respectively, for the Nifty.

However, experts caution that expensive valuations and headwinds such as monetary policy normalisation could cap further upmove in the near term.

“Going forward, concerns over an increase in global bond yields, liquidity tightening and rate hikes by the RBI on the back of higher inflation, and earnings not matching expectations over the next couple of years could put a check to current market momentum. Also as India has significantly outperformed other markets, there could be some mean reversion,” said Bhuskute.