8:55 pm - Wednesday November 4, 2015

Sensex breaches 28,000 for first time ever: Reform push or oil impact?

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Sensex gains 388 points as crude price drops
Sensex gains 388 points as crude price drops

ndian equity markets opened on a positive note today. The BSE Sensex breached the 28,000-mark for the first time, while NSE Nifty hit a new peak of 8,363.65 in early trade today. The midcap index also touched a new high above the 10000-level on sustained capital inflows buoyed by a string of economic reforms recently announced by the government amid optimism over encouraging corporate earnings. Moreover, brent crude prices slipped to USD 82 per barrel, touching its lowest point since October 2010.

Sun Pharma, SBI, Tata Power and Axis Bank are the top Sensex gainers, rising more than 1 percent.

Among the losers are Coal India, Bharti Airtel, Sesa Sterlite, Hindalco and Tata Steel.

Rashtriya Chemicals, ABG Shipyard, Prism Cement, Hexaware Tech and Jyothy Labs are major gainers in the midcap segment.

Marketmen said persistent inflow of foreign funds and sustained buying by retail investors. Besides, falling global crude oil prices which dipped to its lowest closing point since October 2011 also influenced trading sentiments, brokers said.

The Indian rupee opened marginally lower at 61.35 per dollar on Wednesday against 61.40 on Monday.

Asian markets were trading lower on Wednesday. Sentiment in Asia was also under further pressure after the European Commission cut its growth forecasts for the euro zone on Tuesday. The body now forecasts growth of just 0.8 percent this year, down from the 1.2 percent forecast in May.

Analysts expect Sensex to touch 30,000 soon

Analysts at Dalal Street see further upside in the index up to the levels of 30,000 by the December-end and over 35,000 in the next one year given the fact that macros have stabalised and growth has bottomed out.

Deutsche Bank has raised the Sensex target for March 2015 to 29,000 citing intensifying policy action.

“Govt will capitalize on 11-mo. election-free window to move ahead decisively on reform agenda, analysts Abhay Laijawala and Abhishek Saraf wrote in a note last week, adding that the government’s thrust on reforms should help assuage rating agencies and the RBI that the government is committed to addressing supply-side constraints and fiscal imblances.

Deutsche sees a strong likelihood of an unward recision in soverign rating outlook which could set base for an eventual rating upgrade.

World Bank has also indicated that India will grow 5.6 percent this year. Coupled with lower oil prices and gradual implementation of economic reforms back home, the market signals are largely in positive territory.

As Firstpost editor-in-chief R Jagannathan wrote recently, “The easing of global commodity prices and Indian inflation is additionally creating the right ambience for further fund flows, both into equity and debt. In this calendar year to date, foreign institutional investors have pumped Rs 80,566 crore into equity and an even bigger Rs 1,33,799 crore into debt. Domestic mutual funds have invested Rs 14,472 crore in equity and Rs 5,20,710 crore in debt.

The foreign and domestic money is flowing into debt in the context of the likelihood of a fall in interest rates in 2015; the flows into equity are based on future growth prospects.

Remember, equity and debt are inversely related. When rates fall, equity gets more bullish. And debt prices start moving up, too.

India’s markets have thus entered that sweet spot where both debt and equity will attract money – the former because a fall in interest rates will push up the prices of debt instruments, and the latter because equity gets better discounting when rates are expected to fall.”

Overseas investors bought Indian shares worth Rs 1413 crore on Monday, buying for a fourth straight session.

And even as  the US withdraws its monetary stimulus, several other countries continue to pursue aggressive monetary easing to devalue their currencies and revive their flagging economies. Japan has stepped up its already aggressive bond buying. But as this Kotak reports points outs, “The important question however, is that as Japan and other countries (including the ECB and very likely China at some stage) compete to devalue their respective currencies, can this gush of easy money find its way into commodities and hence puncture the Indian rally (negating the bullish thesis around falling commodity prices implying lower inflation and hence lower fiscal deficits and lower interest rates for India?”

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