Sensex closes at record high of 30,133, Nifty maintains 9,300, rupee at 21-month high

Mumbai: The BSE’s benchmark Sensex index closed above the 30,000 mark for the first time on Wednesday, riding a worldwide stock rally fuelled by central-bank asset buying. Experts advised investors against irrational exuberance, saying underlying fundamentals hadn’t changed; few expect the liquidity-driven rally to stop.

The Sensex rose 190.11 points, or 0.63%, higher to close at 30,133.35 points. This follows the 50-share Nifty’s record closing above 9,300 points on Tuesday. On Wednesday, the Nifty climbed 0.49% to close at 9,351.85.

Across the globe, stocks climbed in markets from Tokyo to New York as investors cheered robust US corporate earnings and chances of tax cuts for American companies. These, along with a centrist victory in the first round of the French presidential election, kept the markets upbeat. While the S&P 500 gained 0.61% in overnight trading, the Nikkei 225 gained 1.1% on Wednesday.

“Global growth outlook has improved, driving the risk appetite for investors. In India, cost of funds has dropped. India’s risk premium has come down, because the reforms process may go on, after the government won the Uttar Pradesh elections,” said Gopal Agrawal, chief investment officer, equities, Tata Asset Management Ltd.

While foreign institutional investors (FIIs) have taken a breather in April—after infusing around $6 billion (around Rs38,400 crore) since the start of 2017—there is no let-up in domestic investment. Local institutions have bought Rs7,118.9 crore of stocks this year. On Wednesday, they added another Rs1,011 crore of stocks, provisional data showed.

The rupee, meanwhile, breached the 64 to a dollar mark before closing at a 21-month high of 64.11.

The buying has stretched already rich valuations. The Sensex, for instance, is trading at 17.74 times its estimated fiscal year 2018 earnings, at a nearly 20% premium to its five-year average of 14.8 times.

“Valuation is on the higher end, but I would refrain from calling it expensive at this point,” said Agrawal of Tata Asset Management. “The assumption here, however, is earnings growth will follow. Will that materialize, though, is a big question? If it does materialize, the upside will continue.”

Even if there are short-term disappointments, the picture is still rosy from a longer-term perspective, others contend.

To be sure, current Sensex valuations are not high when compared with the peak of 21.4 times one-year forward earnings it hit in November 2007.

“Earnings will keep growing. So, while market may look frothy from a FY18 earnings perspective, it seems they are discounting longer period of earnings. From a long-term perspective, things definitely look good,” said Tushar Pradhan, chief investment officer at HSBC Asset Management (India) Pvt. Ltd.

“Of course, one needs to be careful at these levels,” he cautioned, adding that it was difficult to make any prediction from here on. He presumes markets may be volatile in the near term.

However, others aren’t as convinced.

“We are unable to fathom the rapid changes in the prices of stocks without any major changes in their fundamentals,” wrote Kotak Institutional Equities analysts, led by strategist Sanjeev Prasad, in a 25 April note to clients. “It seems to us that the sole investment thesis in some cases is ‘liquidity’, which is quite bizarre since ‘active’ investors should be deciding on the fundamental value of stocks rather than leaving it to a nebulous issue such as ‘liquidity’.”

Although the first crop of March quarter earnings have mostly beaten Street expectations, earnings downgrades continue. Consensus fiscal 2018 earnings for the Sensex have been slashed by 3.2% since February and almost 1% since April, show Bloomberg data.

“We have reduced our earnings estimates in a few sectors to factor in a stronger INR (Indian rupee) and weaker volume/realization assumptions,” said the Kotak Institutional note.

In Wednesday’s trading, market breadth turned in the favour of losers at the close, reversing the morning’s trend. At close, more than two shares declined for every share that advanced on the BSE.

The BSE fast-moving consumer goods index and BSE auto index led the gains among sectoral indices. They closed 2.04% and 1.01% higher, respectively.

Financials contributed the most to the Sensex’s gains, with mortgage lender Housing Development Finance Corp. Ltd and private lenders ICICI Bank Ltd and HDFC Bank Ltd leading the pack. They rose 2.36%, 1.61% and 0.73%, respectively.