Sensex kisses 28,000 for the first time, closes a shade lower

BSE index has gained 2,000 points in 12 sessions

The BSE benchmark Sensex on Wednesday rose above the psychological 28,000 mark, for the first time, before shedding some of the gains to close at 27,915.9, a gain of 0.20 per cent over its previous close.

The index had opened higher, at 27,907.2 and risen to a high of 28,010.4 in early trade. Similarly, the National Stock Exchange’s Nifty hit an intra-day high of 8,365.6 before ending at an all-time closing high of 8,338.3.

Sustained capital flows from foreign institutional investors (FIIs), favourable policy measures and the hope of a sooner-than-expected interest rate cut by the Reserve Bank of India (RBI) have seen the 30-share Sensex rallying 2,011 points in 12 trading sessions — from 25,999 on October 16 to 28,010 in intra-day trading on Wednesday.

“The drivers of this rally are clear — quantitative easing measures from Japan and our political system showing reform momentum in the wake of the outcome of state elections in Maharashtra and Haryana,” said Saurabh Mukherjea, CEO (institutional equities), Ambit Capital.

FIIs have turned buyers of Indian equities in the past few sessions, after staying away for most part of last month. In the past four trading sessions, FIIs have net-bought Rs 5,211 crore worth of equities, data show.

Rate-sensitive rally

The hope of an earlier-than-expected interest rate cut by the RBI has seen the rate-sensitive sectors like real estate, infrastructure, banking, capital goods and automobiles outperforming the market. Key stocks from these sectors have risen between nine and 15 per cent during this 12-day period. The government’s recent move to relax the rules for foreign direct investment (FDI) in the construction sector, besides other measures, has also aided the sentiment.

Larsen & Toubro, BHEL, YES Bank, Cipla, Axis Bank, HDFC, Kotak Mahindra Bank, Hindalco, Zee Entertainment and ICICI Bank have been among the stocks that have gained the most on the index.

Outlook

In the near term, analysts say, the markets will react to the government’s reform initiatives and corporate results.

Parliament’s winter session will also be closely watched for key reform measures like an indirect tax regime, and the land acquisition Bill. While most agree the long-term story remains intact, they do not rule out a near-term correction.

“I don’t expect the rally to continue in a big way. The markets can correct five to seven per cent from here. The next leg of big upmove is likely around the Budget, which is a good four months away. I do not see a surge, like what we have seen since February this year, unless we see some action on the policy front. Top bets continue to be economy-related sectors, such as oil & gas, power, engineering and private-sector banks,” says Dalton Capital Advisors Managing Director U R Bhat.

At the global level, the markets are likely to react to economic data from China and Europe and cues from the US Federal Reserve on a possible rate increase.

“The main concern is the global macroeconomic instability on the back of Bank of Japan’s move to comparatively devalue the yen. There is a high chance that the European Union and China would devalue their currencies as well, at a time when large economies across the globe are dealing with sluggish economic growth. There is a relatively high chance of a sharp global shock to equities in the next six months. Indian markets will be dragged down if global equities tumble sharply. Such a time, though, will be good for investors to enter the markets,” Ambit’s Mukherjea says.

BSE Sensex hits record high above 28000