Nifty above 10,000: Investors greet occasion with sense of euphoria tinged with scepticism

The Nifty closed above the psychologically crucial 10,000 mark on Wednesday for the first time as Dalal Street ushered in the milestone with a mix of euphoria and scepticism. The euphoria is driven by hope that the four-year bull rally will continue for a while thanks to domestic inflows; the scepticism is fuelled by fears that the markets may have risen too high, too fast in the absence of corporate earnings revival.

Just as the market showed signs of losing steam on Wednesday, better-than-expected results from Yes Bank provided late impetus to the benchmark indices, which ended at record highs. The Nifty gained 56.10 points, or 0.56%, to close at 10,020.65. The Sensex rose 154.19 points, or 0.48%, to close at 32,382.46. Yes Bank shares rose 6.4% and IndusInd Bank gained 2.3%.

The close above 10,000 has opened up the possibility of the Nifty rising about 3% in the near term, said technical analysts. Axis Capital MD Dharmesh Mehta expects the market to rise 20-30% in a couple of years, or even earlier. The stock market has been on a record-breaking spree, mirroring the strength in global markets, as a mix of weak dollar, low oil prices and relatively dovish commentary by the Federal Reserve buoy riskier asset classes.



In India, domestic flows have helped maintain the momentum despite stock valuations hitting record highs even in the absence of a revival in earnings growth.

Valuations at Upper End
“Risk-reward balance looks unfavourable on immediate earnings outlook for most sectors and stocks, but global and domestic macro factors are quite favourable,” said Sanjeev Prasad, senior executive director, Kotak Institutional Equities.

Indian indices have gained about 22% so far in 2017, outperforming the MSCI Emerging Markets Index that has risen around 16% during the period. But what may be worrying investors is that gains have not been broad-based, with only a handful of stocks including Reliance Industries, HDFC Bank, HDFC Ltd and Kotak Mahindra Bank contributing the bulk of the Nifty’s gains during its journey from 8000 to 10000.

“10000 is just a psychological level, and the rise was accelerated largely by Reliance Industries and HDFC Bank,” said Axis Capital’s Mehta.

Analysts said share valuations are at the upper end, making India one of the most expensive emerging markets. The price to earnings ratio of the Sensex is roughly 20 times estimated earnings, compared with 13.5 times for the MSCI Emerging Markets Index.

Analysts, however, said valuations are yet to reach the bubble stage.

“Valuations are stretched for the consumption sectors, especially consumer staples and discretionary names, and certain NBFCs (non-banking financial companies). However, the valuation for the rest of the market is fair,” said Kotak’s Prasad.

On Wednesday, domestic institutional investors net bought shares worth Rs 676.61 crore while their foreign counterparts net sold to the tune of Rs 60 crore. So far in 2017, DIIs have pumped roughly Rs 45,000 crore into stocks while foreign funds have bought shares worth Rs 57,000 crore.