The broad-based BSE 500 and the BSE Mid-cap Index closed at lifetime highs led by gains in banking and metal stocks. The Nifty 50 ended at a 16-month high, while the Sensex closed at a level last seen 13 months ago. Both gained 1.6 per cent, the most in around seven weeks. The Nifty closed at 8,744, about three per cent shy of a record high. The combined market capitalisation of companies listed on the BSE crossed Rs 110 lakh crore for the first time.
Most Asian markets too gained, but India by far was the best-performing market on Tuesday.
“The markets are going up on the back of liquidity. Till the time there is easy liquidity, markets could keep going up. However, we have to be mindful of stretched valuations. The Street is hoping that there will be a sharp recovery in earnings of 15-18 per cent. However, it hasn’t reflected in the first quarter numbers,” said Daljeet Kohli, head of research, IndiaNivesh.
The Sensex now trades at 16.5 times its 12-month forward earnings expectations, compared to 12.5 times for the MSCI Emerging Markets Index. Sensex valuations are the highest since April 2015, according to Bloomberg data.
Both domestic and foreign institutional investors (FIIs) were net buyers to the tune of Rs 485 crore and Rs 391 crore, respectively. “Most mutual funds are dabbling in mid and small-caps, which are driving up their prices. Foreign funds and exchange-traded funds are mostly investing in the main indices. We are seeing action on both sides,” said Deven Choksey, managing director, KR Choksey Investment Managers.
Deutsche Bank, in a note, said two-wheeler companies and banks would be the main beneficiaries of the implementation of the pay commission's recommendations. “India looks set for a positive confidence shock, which should boost consumption and help buoy domestic aggregate demand robustly,” it said.
Experts said markets have come to terms with the rate increase in the US. The US Federal Reserve last week had said the case of interest rate tightening in had strengthened, but hinted that any increase would be gradual. The US non-farm payrolls data due Friday will be keenly watched as it could determine Fed's next move, said analysts.
The Sensex is up 23 per cent from the 2016 low of 23,000 it touched on February 29. The rally has been fueled by robust foreign inflows. FIIs have invested about $6 billion into Indian stocks so far this year.