Sensex hits record closing high of 35,260 over bank FDI hopes; lenders gain

HDFC Bank m-cap touches Rs 5 trillion

Indian markets on Thursday recorded new highs with the Sensex consolidating above 35,000 and the 50-share Nifty closing above 10,000. 

Banking shares led the gains for a second day, this time on hopes that the government would raise the foreign direct investment (FDI) ceiling for the sector to 100 per cent. A day earlier, they had jumped after the Centre announced a cut in additional borrowing to Rs 200 billion. 

After rallying as much as 425 points, the Sensex settled 178.5 points, or 0.5 per cent, higher at 35,260 and the Nifty closed at 10,817, up 28.5 points, or 0.26 per cent. 

The markets came off from their highs as some investors booked profits judging recent gains as excessive, said experts. The broader market in fact saw widespread losses. The BSE Mid- and Small-cap indices fell 1.6 per cent and 2 per cent, respectively. 

The breadth of the market also remained negative with over three shares declining for every one advancing.

HDFC Bank, HDFC, Kotak Mahindra Bank and ICICI Bank contributed 186 points to the Sensex advance. The stocks gained between 1 per cent and 2.2 per cent on optimism that higher FDI would spur stock prices.

HDFC Bank crossed the landmark of Rs 5 trillion market capitalisation for the first time on Thursday.

Banking shares have been at the forefront of the market rally last year with the sectoral index for banks in the BSE rallying nearly 40 per cent in 2017. Analysts expect this superior performance of banks, especially the private sector ones, to continue in the medium term.

“Private bank stocks have witnessed a lot of traction in the recent past and the trend is expected to continue for a few  quarters. The growth momentum in the private banks is higher and their proportion of NPAs is also lower. The market share of private banks could continue to grow for the next three or four quarters as public sector lenders battle the NPA problem.

However, on the flip side, valuations of private banks look expensive,” said UR Bhat, managing director, Dalton Capital Advisors.

In net terms, foreign portfolio investors (FPIs) purchased shares worth Rs 18.94 billion while domestic institutions sold shares worth Rs 6.6 billion, exchange data showed. 

Market participants expect the buoyancy to continue while policy measures to be anounced in the Union Budget along with corporate earnings will decide the market direction.

“All the market indicators are looking supportive. However, if an earnings revival does not come through, equities will be vulnerable. Corporate India is not yet near the turn in the business cycle, but that could change during 2018,” said Sanctum Wealth Management in a note to investors.

However, performance of mid- and small-cap stocks remains a key concern for the Indian markets. Aggressive buying by mutual funds in the last few years has jacked up demand for mid-cap and small-cap stocks. The broader market indices outperformed the Sensex for  four years straight. Both the mid- and small-cap indices are trading several notches above their usual price-earnings (P/E) multiples.

“Market strength is visible on the back of good start to third-quarter results, but there is a disconnect between index movement and stock movement. The index is holding out well, but there is weakness in the broad market,” said Hemang Jani, head, advisory, Sharekhan.