The Indian equity benchmarks again soared to new heights on Wednesday, buoyed by a global rally amid prospects of the US Federal Reserve slashing rates as early as March next year and robust buying by foreign portfolio investors (FPIs).
The Sensex crossed the 72,000 mark for the first time, peaking at 72,120 before settling at 72,038 — up 702 points or 0.98 per cent. The Nifty50 closed at 21,655 after gaining 213 points or 1 per cent during the day. Both indices set new records on intraday and closing bases.
This month, so far, the Nifty50 and the Sensex have scaled fresh peaks in nine and eight sessions, respectively. On an intraday basis, the Nifty50 has hit new highs in 12 sessions and the Sensex in 10.
The Federal Reserve’s preferred inflation gauge has eased, fuelling hopes of aggressive rate cuts next year. The US personal consumption expenditure price index rose 0.1 per cent from the previous month and 3.2 per cent year-on-year in November. On an annualised basis, the metric rose 1.9 per cent — the first time in three years when inflation was below the Fed’s target. The 10-year US bond yield during the day eased slightly to 3.8 per cent.
The markets globally continue to be higher on that optimism. Until it gets dispelled, the markets will be expecting rate cuts in March by 25 basis points,” said Andrew Holland, CEO of Avendus Capital Alternate Strategies.
He, however, cautioned that geopolitical tensions could throw a spanner in the works. “The only thing that could spoil the party is any escalation in the conflict in West Asia. If the issues at the Suez Canal exacerbate, they will disturb the supply chain and increase commodity prices.”
India’s improving current account deficit (CAD) numbers also boosted investor sentiment. The CAD for the July-September quarter stood at 1 per cent of gross domestic product (GDP), down from 1.1 per cent in the preceding quarter and 3.8 per cent in the same quarter a year ago. The decrease was attributed to a lower merchandise deficit, while services exports rose.
Foreign portfolio investors (FPIs) were net buyers to the tune of Rs 2,926 crore on Wednesday, according to provisional data from exchanges. In December 2023, so far, they have been net buyers of equity worth Rs 47,531 crore, marking the best December since 2020.
But some experts cautioned against market exuberance, warning that the Fed will likely cut rates, but not at the pace currently priced in. They also raised concerns about elevated valuations of midcap and smallcap stocks.
“We believe one needs to be cautious as the valuation is running ahead of fundamentals. But largecaps may offer better risk-reward over the next few months. As anticipated, they’ve outperformed midcaps over the past month. We recommend reducing allocation to midcaps and smallcaps,” said Jitendra Gohil, chief investment strategist, Kotak Alternate Asset Managers.
The market breadth was favourable, with 1,945 stocks advancing and 1,859 declining. More than two-thirds of Sensex stocks gained. HDFC Banks rose 1.2 per cent and contributed the most to Sensex gains.
First Published: Dec 27 2023 | 8:16 PM IST
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