These 5 factors drove the Sensex, Nifty to record highs this week

Bulls continued to dominate Dalal Street for the sixth consecutive week and have not given bears any chance as benchmark indices scaled fresh highs on Monday. The Sensex climbed 340.79 points, or 0.89 percent, to 38,592.59 while the Nifty surged 97.90 points, or 0.85 percent, to 11,655, surpassing its near term resistance.

Index heavyweights Reliance Industries, ITC and banks have been driving the rally for over a month. Broader markets too have been participating in the bull run as the BSE Midcap and Smallcap indices gained more than half a percent.

In over five weeks, benchmark indices climbed 5 percent each and broader markets surged 7-8 percent. After this sharp run, experts have turned cautious but still expect a further rally. Earnings and stability in crude oil prices and rupee movement against the dollar continue to remain key drivers.

While maintaining its overweight rating on India and Nifty target of 11,900 by June next year, Timothy Moe, Chief Asia-Pacific Strategist, Goldman Sachs, said, "We see investor concerns about the impact of rising commodity prices on earnings. Q1 FY19 earnings suggest that costs for BSE 200 companies rose at the fastest pace in past 6 years at 20 percent year-on-year. However, we feel rising costs so far is less concerning for overall profitability."

Here are top five factors that could help the market hit fresh highs:

Asian markets traded in positive territory, especially after US Federal Reserve Chairman Jerome Powell said gradual rate hikes are on cards and China's central bank decided to lift its official yuan midpoint more than what the street expected.

China's Shanghai Composite rose 1.4 percent, Hong Kong's Hang Seng 2 percent and Japan's Nikkei gained 0.86 percent. The People's Bank of China announced it was tweaking its methodology for the fixing the yuan's daily midpoint in an effort to stabilise the currency market.

US markets ended Friday's session higher. The Dow Jones Industrial Average gained 133.37 points to close at 25,790.35. The S&P 500 climbed 0.6 percent to 2,874.69 and the Nasdaq Composite added 0.9 percent to 7,975.98, a record closing high for both indices.

The Federal Reserve Chairman Jerome Powell in his speech at the Jackson Hole Symposium in Wyoming that the US economy has been growing at a strong pace (around 4 percent) and can bear a tighter monetary policy. "Further, gradual rate hikes were likely in the future, noting the economy is strong and able to withstand tighter monetary policy."

Foreign institutional investors flows have been positive for a couple of months now, which is one of the biggest reason for the rally in Indian equities on top of continued support from domestic institutional investors.

FIIs net bought Rs 491 crore worth of shares in July and around Rs 1,000 crore in August after selling in the previous three consecutive months.

Experts feel DIIs flow will continue to support equities going forward, but FII flows will take some more time to pick up. "While we do not expect FII flows to pick up, we are reasonably certain that outflows might not continue going forward," Nitin Rao, CEO, Reliance Wealth Management said, adding global trade war and its outcome could put pressure on the rupee and hence could be detrimental to FII flows.

The rupee has stabilised against the dollar and has been moving in a range after hitting a record low of Rs 70.33 last week, trading in the band of Rs 69.50-70/$.

Stabilisation in the currency is an important factor but experts feel it may not stay for long. "The rupee continues to hog the limelight for a variety of reasons. First, it is now the worst performer among Asian currencies this year having depreciated nearly 11 percent. It looks poised to remain weak for some more time," RK Gurumurthy, SVP – Treasury, Lakshmi Vilas Bank, said.

Rising crude oil prices, expected dollar demand after the recent comment by Federal Reserve chairman and escalating trade war tensions between US & China continue to weigh on the dollar-rupee.

The Nifty crossed the important psychological level of 11,500 and 11,600 in the week gone by, forming a bullish candle. The index seems to be heading towards 11,700 in the August expiry week, experts said.

On Monday, the index hit a fresh high of 11,660.60, crossing its near term resistance of 11,640-11,660.

Mazhar Mohammad, Chief Strategist – Technical Research & Trading Advisory, Chartviewindia.in, said a close above 11,620 will reinstate the bullish sentiment, with initial targets placed around 11,700 levels.