Indices hit fresh highs on strong liquidity flows

Indian equities surged to fresh records on Wednesday as a spurt in the last half hour of trade helped the Sensex surpass 63,000 for the first time. The Nifty crossed 18,800, with local stocks riding a bullish momentum that has extended to the seventh straight day, aided by continued foreign fund inflows. The Sensex closed at a record of 63,099.65, up 417.81 points, or 0.67%, from the previous close. It touched a new intraday high of 63,301.01 before paring some gains.

The Nifty advanced 140.30 points, or 0.75%, to a new record close of 18,758.35. it hit a new intraday high of 18,816.05, beating Tuesday's record of 18,678.10.

Foreign portfolio investors (FPIs) bought Indian shares worth a net Rs 9,010.41 crore on Wednesday, according to provisional stock exchange data. Brokers said Wednesday's flows could also include some block purchases by foreigners and on account to inclusions of some Indian stocks to MSCI indices. So far this month, including Wednesday's provisional data, FPIs have purchased shares worth nearly Rs 38,333 crore in the cash segment, the best in three months.

"Foreign and domestic liquidity will continue to be strong," said Vikas Khemani, founder, Carnelian Asset Management.

Khemani of Carnelian said, "We are seeing inflationary pressures peaking out, and, as a result, we will see liquidity flowing back to Indian and emerging markets."

Barring the Japanese market, all major Asian indices advanced on Wednesday, tracking positive cues from overnight US markets as the dollar was poised for its biggest monthly decline since 2010 ahead of US Federal Reserve chair Jerome Powell's speech. Major averages across Europe were up 0.5-1% as Euro zone inflation eased far more than expected in November, raising hopes for a slowdown in European Central Bank rate hikes next month, giving a boost to global "risk-on" sentiment. The Stoxx Europe 600, a pan-European gauge, was up 0.7% at press time.

"Crude oil prices have weakened significantly in the past few weeks and continue to show weakness. This has worked in favour of our markets," said Alok Ranjan, chief investment officer, IDBI Mutual Fund. "There is an Opec meeting going forward, and that may determine the further direction in oil prices. (But) most of the economic data locally and globally are showing definite signs of inflationary pressures having peaked out."

Brent crude oil jumped over 2% to quote above $86 a barrel at the time of going to print on Wednesday, after rising 3% the previous day as talk of production cuts by the Organisation of the Petroleum Exporting Countries and allies, including Russia, gathered pace. The oil grouping is scheduled to meet on Sunday to decide its next output level that will have a bearing on prices.

Big Gains

Back home, 22 of the 30 Sensex companies ended in the green, led by Mahindra & Mahindra (4%). UltraTech Cement (2.2%), Power Grid (2.1%), Hindustan Unilever (1.8%) and Bharti Airtel (1.6%) were the other top gainers. All sectoral indices rose and market breadth was strong, with advancing stocks outnumbering falling ones on the NSE by 1.34 to 1.

On Wednesday, the VIX, a measure of traders' expectations of near-term risks to the market, rose 1.41% to close at 13.81. The VIX had touched a high of 33.97 in March, when the US Fed increased key lending rates for the first time. "While valuations may appear expensive compared with our historical average, as well as with peers, we see no reasons to worry, given India's structural reset in play. The Indian economy is the fastest-growing economy," said Khemani.

The Sensex is trading at around 22 times its one-year forward earnings, compared with the historical average of 18-19 times, perhaps anticipating an uptick in corporate earnings ahead due to the fall in commodity prices, analysts said.