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Nifty breaches 10,000 mark first time ever, Sensex extends rally

Top performers during initial trade were Hero MotoCorp, Bharti Airtel, HDFC Bank, Tata Steel, Power Grid, ICICI Bank, Kotak Bank, NTPC, Bajaj Auto, SBI, M&M, Dr Reddy’s, Adani Ports and ITC Ltd

business Updated: Jul 25, 2017 11:31 IST
Ravindra N. Sonavane, Livemint
Nifty,Sensex,NSE
Nifty hit 10,000 on Tuesday.(Photo: Livemint)

The Nifty 50-share index crossed the 10,000 mark for the first time on Tuesday to hit a record high as foreign and domestic institutional investors continued to buy in local equity markets on growth expectations and further reforms from the government.

However, traders warned that this could also signal a move for market consolidation as the gauge was running ahead of corporate earnings.

On Monday, the International Monetary Fund (IMF) kept its outlook for India’s GDP (gross domestic product) growth rate unchanged at 7.2% in 2017-18 and 7.7% in 2018-19.

The 50-share index opened at 10,010.55 points, up 0.44% from the previous close. At 11am, it had retreated to 9,973.35, just 0.07% up, as traders became cautious ahead of the US Federal Reserve meeting starting Tuesday. The other Indian benchmark, the Sensex index was trading at 32,282.74, up 0.11% from Monday’s close.

According to a Bloomberg report, the Fed is expected to keep rates on hold, traders are looking for comments that it could make on its balance sheet reduction plan.

“Investors will not read too much into these levels as performance of one’s portfolio and the long term trend in the market is what matters. The outlook is a positive start,” said Amar Ambani, head of research at IIFL Wealth Management in a morning note to clients.

The rise in Indian stocks has been fuelled by a mix of local and foreign institutional investor buying. So far this year, foreign institutional investors have bought a net of $8.73 billion, while domestic institutional investors have bought a net Rs24,126.87 crore in equities.

The rise in the markets has, however, been purely a function of this liquidity with not much of an increase in earnings expectations. Thus, the Nifty has become one of the most expensive indices in the world. Currently, it is trading at 19.2 times its expected earnings for the current financial year. This compared to a multiple of 17.6 times at the start of the fiscal year.

With the goods and services tax crimping earnings expectation for the first half of this financial year, valuations are unlikely to come down soon.

“It’s high time that markets consolidate,” said Manish Sonthalia, head of equities for Motilal Oswal Asset Management’s portfolio management services. “Markets are running ahead of fundamentals, only liquidity is driving the rally. Valuations are expensive as earnings are not going to see growth.”

In Tuesday’s trade, market breadth was positive with gainers just ahead of losers in the ratio of 27:23.

Among the Nifty stocks, Indiabulls Housing Finance Ltd was the top gainer, up 2.6% followed by Bharti Infratel Ltd and Vedanta Ltd which advanced 2.5% and 1.7% respectively.

Among the losers, Zee Entertainment Enterprises Ltd fell 1.8% followed by Eicher Motors Ltd and HCL Technologies Ltd which declined 1.7% and 1.6% respectively.

NSE’s Volatility index or VIX, a measure of near-term market volatility fell 4.5%, to 10.81.

First Published: Jul 25, 2017 09:48 IST