BUSINESS

What's Behind The Lifetime Highs Of BSE Sensex And The Nifty? Should You Invest?

'A market driven by liquidity is like a Ferrari with failed brakes, driverless on a straight road.'

26/04/2017 4:36 PM IST | Updated 26/04/2017 5:04 PM IST
Kim Kyung Hoon / Reuters

The Bombay Stock Exchange reached a record high on Wednesday, with the Nifty hitting its highest ever for a second straight trading session.

BSE Sensex closed at 30,133, up 190 points and the Nifty rose 45 points to close at 9,352—both life time highs on the back of sustained buying by retail investors and amid high foreign fund inflows.

Here's what the brokers say is behind the market rally:

Strong company earnings

The overall market sentiment has remained bullish thanks to strong quarterly earnings by select bluechip stocks including IDFC Bank on Tuesday.

Shares of Wipro surged 2.36 per cent to Rs 506.20 after the company yesterday posted a marginal increase in its consolidated profit at Rs 2,267 crore for the quarter ended March and said it will issue bonus shares within the next two months.

"There is optimism across the globe that is driving markets," Saurabh Jain, assistant vice-president of research at SMC Global Securities told Reuters.

Foreign investment inflows

Brokers say that foreign capital inflows are expected to improve as both domestic and world economies turn around. Foreign investors have purchased at least $16 billion in Indian shares and debt so far this year, according to Reuters.

India is also seeing liquidity from retail investors, particularly mutual fund investors.

"In the domestic market, it is the liquidity factor which is making much of the story in the mid-cap and small-cap stocks," said Jain.

Rupee gets a lift

The rupee has also strongly appreciated against the dollar to trade at a near 21-month high of 64.07 fuelled the rally of the stock market.

While it has strengthened this year the RBI has refrained from stepping in to stop its sharp gains, a practice it has deployed in the past.

Among other Asian markets, Hong Kong's Hang Seng was up 0.56 per cent, while Japan's Nikkei rose 0.73 per cent in early trade today. Shanghai Composite Index gained 0.36 per cent.

Should you invest?

While the lifetime highs may be tempting for first-time equity investors, experts warn retail investors to tread cautiously. Mutual fund investors, particularly, should be more focused on long-term performance of their fund.

Basant Maheshwari of Basant Maheshwari Wealth Advisers thinks the stock market rally is similar to a ride in a Ferrari with failed brakes.

Maheshwari told Economic Times, "This is a liquidity-driven rally without earnings growth. A market driven by liquidity is like a Ferrari with failed brakes, driverless on a straight road. So, when a curve comes, we will know what it is like. I think the curve can come from either Mr Trump, who is blowing his trumpet every day, or from the North Korea or anywhere."

With Reuters and PTI inputs.

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