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The BSE Sensex hit a new record on Friday after almost six years, as better-than-expected earnings of some top companies prompted foreign institutions to extend purchases. But few celebrated the new highs for the Sensex, as most investors have been left out in the two-month rally, triggered by the appointment of Raghuram Rajan as RBI governor in early August.
The Sensex rose to 21,293.88 earlier on Friday, exceeding the previous record of 21,206.77, on January 10, 2008. The index closed at 21,209.52, up 45 points or 0.21 per cent. The National Stock Exchange (NSE)’s Nifty gained 8.05 points or 0.13 per cent to close at 6,307.20.
The Sensex has gained close to 10 per cent in 2013 and has been among the top emerging market performers in the period. But in dollar terms, it has been a laggard, with a decline of almost three per cent. Also, unlike in 2008, the rally has escaped most indices. While the BSE Small-cap Index was 58 per cent lower than its all-time high, the Mid-cap Index was lower by 40 per cent and the realty index by 90 per cent.
The Sensex’s record levels have come at a time when inflation levels remain elevated, gross domestic product growth has shrunk below five per cent and investments have come to a standstill. This has made several investors sceptical about the durability of the Sensex’s recent upsides. Finance Minister P Chidambaram cautioned investors against excessive exuberance over the market rally, according to reports. (Click for chart & table)
The silver lining has been the uninterrupted foreign institutional investor (FII) inflows, thanks to the US Federal Reserve’s decision to continue with its monetary stimulus.
On Friday, FIIs net-bought shares worth Rs 186.95 crore, while their domestic peers sold to the tune of Rs 423 crore, according to provisional data.
Shares of state-owned banks gained on Friday after September core sector output, which rose at its fastest pace in a year, sparked hopes the worst might be over for industries. State Bank of India rose five per cent, Bank of India gained 5.5 per cent and Bank of Baroda advanced 4.5 per cent.
Equity strategists such as JPMorgan’s Adrian Mowat said the continuous flows have been partly on account of the resilience in July-September results that led to some on Dalal Street believing the worst might be over.
Nitin Jain, president–capital markets (individual clients group), Edelweiss Broking, said: “Of late, there have been some bets on earnings revisions upwards because they have been positively surprised with the results.”
But the stronger earnings might not entice retail investors to aggressively buy shares, which has been the biggest underperforming asset class since the bull rally ended in 2008. As a result, retail investors have been cutting exposure to their holdings on every upside.
Analysts said a majority of the recent gains in the Sensex was on account of gains in select stocks such as Infosys, TCS, ICICI Bank, Tata Motors, Reliance Industries and some consumer stocks.
“Consumer staples are overvalued, as are thematic growth stocks,” said JPMorgan’s Mowat. Brokers said many investors have not been able to purchase technology stocks, the best performer so far this year.
