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Strong inflows from foreign portfolio investors (FPI), gains in index heavyweights -- Infosys and Reliance Industries (RIL) -- and easing recession concerns in the developed world helped domestic equities log new highs on Tuesday.
The Sensex closed at 66,795 points, with a gain of 205 points, or 0.3 per cent while the Nifty50 ended the session at 19,749 points, gaining 38 points or 0.2 per cent. This was the 11th trading session when the Nifty50 finished at a new high since surpassing last year’s record closing in June.
FPIs continued to be big buyers of domestic equities. On Tuesday, they were net buyers of Rs. 2,116 crore, according to provisional data from exchanges. So far this month, they have bought shares worth Rs. 34,444 crore, taking their buying tally since March close to Rs. 1.5 trillion ($12 billion).
As has been the practice in the last few sessions, two index heavyweights accounted for the bulk of the gains. On Tuesday, it was the turn Infosys and RIL. Infosys rose 3.7 per cent and was the best-performing Sensex stock. The IT major made a 165-point contribution, the most to Sensex gains, while RIL contributed 78 points. The tech sector has seen a sharp revival in investor interest amid easing of growth fears.
"Market expectations from IT companies took a beating earlier this year. When the expectations are low, the chances of disappointment are less. And overall, almost every sector had risen except IT. So people are looking to buy stocks where there is value,” said Ambareesh Baliga, an independent market analyst.
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Buying interest in RIL continued as brokerages advised investors to buy the stock before the record date of July 20 for the demerger of its financial services arm.
The statements by a bunch of monetary policy and government officials about easing inflation and recession concerns further boosted sentiment.
On Monday, US Treasury Secretary Janet Yellen said the United States was making progress in bringing inflation down, and she did not expect the US economy to enter into a recession.
Meanwhile, the European Central Bank Governing Council member Klaas Knot said that monetary tightening beyond next week's meeting is a possibility and not a certainty. Market experts interpreted Knot's comments as a sign that ECB officials could pause their hikes.
From this year’s lows, the benchmark indices have rallied close to 16 per cent. Analysts expect the markets could cool off amid rising valuations. Also, China's choppy economic recovery has clouded the global growth outlook.
China's gross domestic product (GDP) grew just 0.8 per cent in the first quarter of the 2023-24 financial year (Q1FY24) against the Q4FY23 number. Though the GDP expanded by 6.3 per cent on a year-on-year basis, the growth was well below expectations.
After hitting new records, the Nifty50 trades at a one-year forward price-to-earnings (PE) multiple of nearly 20 times
"Market is waiting for an excuse to correct. Even a day or two of tepid FPI flows can lead to some correction,” said UR Bhat, co-founder, Alphaniti Fintech.
The India Vix index rose 3.5 per cent to 11.7 per cent. Analysts say that the past two-day trajectory for the volatility gauge indicates that the markets have turned overheated.
On the day, market breadth turned weak with 2,054 stocks declining, and 1,380 advancing on the BSE.
"We suggest investors look for a buy-on-dips strategy as the Q1 earning season is expected to be healthy. On the global front, investors look ahead to a busy week of earnings, including quarterly results from some of the largest US banks,” said Siddhartha Khemka, head of retail research at Motilal Oswal Financial Services.
