Benchmark indices rallied sharply for the second straight day on Monday after investor sentiment improved following the proposed trade talks between the US and China. Gains in index-heavyweights Reliance Industries (RIL) and Larson & Toubro (L&T) propelled the Sensex to a new all-time high and helped the Nifty50 index to close above 11,500 for the first time.
The Sensex gained 330.8 points, or 0.87 per cent, to close at 38,278 — less than 5 per cent shy of the 40,000-mark. The Nifty index rose 81 points, or 0.7 per cent, to settle at 11,551.7.
Most global markets gained on optimism that the talks between the world’s biggest economies would ease trade tensions. The drop in crude prices and the rebound in the rupee supported the gains.
The rupee closed at Rs 69.82, rebounding 0.5 per cent from its historic closing low of Rs 70.16 on Thursday.
The recent trade turmoil took the sheen off emerging market (EM) stocks and currencies. Indian stocks were relatively insulated. Since June-end, the Sensex has gained nearly 10 per cent, even as the MSCI EM Index has lost 2 per cent.
“India has been remarkably resilient in the recent EM turmoil driven by macro stability, low policy uncertainty, improving growth, and domestic flows,” said Ridham Desai, managing director and India equity strategist, Morgan Stanley, in a note. “India’s policy environment has defied expectations and remained relatively benign despite the impending elections in 2019.”
Foreign portfolio investors (FPIs) have been net buyers in the Indian market during August to a tune of $220 million even as they have been trimming their exposure to other EMs.
“Markets are on steroids, defying gravity with a strong buying momentum from both domestic and foreign investors. FPIs, who have been net sellers in the first half, have turned net-buyers, providing the much-needed aggressive push to Indian markets,” said Jagannadham Thunuguntla, head of research, Centrum Wealth.
The strong market momentum was also seen in the broader markets, with the BSE MidCap index gaining more than 1 per cent for a second day.
FPIs, however, net-sold equities worth Rs 4.8 billion, while domestic institutions net-purchased shares worth Rs 5.9 billion, the provisional data provided by stock exchanges showed.
Analysts expect the market sentiment to remain positive in the near term. However, an increased volatility is expected towards the end of the calendar on account of state elections. On the global front, further strengthening of the dollar is the biggest headwind, while from a domestic point of view, any setback for the ruling Bharatiya Janata Party in the state polls could impact sentiment, said experts.
A bulk of the gains made by the Sensex on Monday was on account of L&T and RIL. L&T shares surged 6.7 per cent after the company proposed a share buyback programme. Shares of Tata Motors, Oil and Natural Gas Corporation, and Tata Steel also gained over 3 per cent each. On the other hand, Infosys shares dragged the index with a fall of 3.2 per cent.
The Sensex is now up 12 per cent so far this year, making it the best-performing market in Asia.
Index heavyweights Tata Consultancy Services, RIL, Infosys, and Hindustan Unilever — each of whom have gained over 30 per cent this year — have buoyed the benchmark indices.
“Relative valuations are nudging higher, making the market less attractive, especially if the pace of the recent outperformance persists,” said Desai.