Bull market — a long-forgotten catch phrase — is making a comeback on the Street. The rally in the new year has made many market pundits wonder if this is indeed the beginning of a bull run.
The dollar rush from overseas investors has silenced the bears, at least for now. After losing a quarter of its value in 2011, the National Stock Exchange (NSE) benchmark, the Nifty, has gained about 15.17 per cent this year — the best among major global indices. The 50-stock index added nearly 1 per cent on Friday to close at 5,325.85, its fifth consecutive weekly rise.
“These are tell-tale signs of a new bull market,” says Ridham Desai, managing director and head of India equity research at Morgan Stanley.
“Narrow indices are past their 200 DMA (daily moving average) for the first time since February 2011. Sector rotation has hit a 15-month high. Cyclicals are back and the so-called defensives have underperformed,” he said in a strategy note to clients today. “The market continues to have support from sceptical positioning and low expectations. We expect upward progress, although the pace of the recent move may induce volatility.”
Even a man who is well known for his bearish views — First Global’s Shankar Sharma — expects the Indian market to touch its all-time high this year. “I expect the market to touch a new lifetime high this year. The trigger will be a very strong rupee which will lead to high FII flows. Once rate cuts start in the next one or two quarters, the growth rate will be back to 8-8.5 per cent by the first quarter of 2013,” he told Business Standard.
Several things have changed from last year. Foreign institutional investors (FIIs) have pumped in Rs 15,317 crore ($3.12 billion) in Indian shares this year so far, Securities and Exchange Board of India (Sebi) data compiled by BS Research Bureau showed. Last year, they had pulled out Rs 3,417.60 crore as high interest rates, a governance deficit and corruption scandals soured investor mood.
The Indian rupee, which lost 18.70 per cent against the US dollar in 2011, has gained 8.23 per cent in this year till on Friday. It closed at 48.70 against the greenback on Friday. This has made returns for overseas investors sweeter, with the Nifty gaining 25.3 per cent year-to-date in dollar terms.
Activity in the cash market has started picking up. Average daily cash market turnover in the first three days of this month is about Rs 19,000 crore, highest since November 2010 when the market peaked.
Technically, too, things appear on better footing. The two key indices — the Sensex and the Nifty — as well as the broader BSE 500 index are all trading above their 200-day moving averages (DMAs), the first time since April 2011. A break above 200 DMA, considered an important technical indicator, suggests investors are willing to pay more than the average price of the previous 200 trading sessions.
A report by KR Choksey Shares and Securities in early January, which analysed historical cycles, says the Indian market forms a bottom in about 14 months after forming a peak. “We have already spent 13 months from the previous peak (in November 2010), so we are close to the bottom,” it says.
Strategists at Credit Suisse also don’t rule out a possibility of the start of a bull market. “While that is not our belief, it is entirely possible that this is the first leg of a bull market rally,” said Neelkanth Mishra, director-equity research, Credit Suisse Securities (India), in a strategy note, after studying 16 bear market rallies on the Nifty since 1995.
“Of the eight such rallies since 1995, the magnitude has been materially higher than in the current instance so far, except in November 1998 but in terms of duration only three have been longer,” he added.
In December last year, Mishra had said the Sensex could be in a range of 13,200-14,400 by June-July 2012.
Globally, too, strategists and fund managers are abandoning their bearish forecasts. “Most people were positioned for fairly weak markets, a continuation of last year,” Tim Ash, the global head of emerging markets research and strategy at RBS, told Bloomberg on January 30.
The London-based strategist had anticipated a “difficult” start to the year, with emerging-market assets rallying closer to the middle of 2012. Ash wrote in a January 27 note the rally suggested the timing of his previous forecast was wrong and he predicted emerging-market currencies would continue to strengthen, according to the Bloomberg report.
