Indian markets have surged over 11% in last six sessions riding wave of optimism while the country is opening up gradually post strict lockdown measures. Institutional investors continued to flush equities with abundant liquidity while global markets also supported rally in Indian markets. The Sensex gained 3500 points or 11.44% and Nifty gained 1032.50 or 11.44% in last six sessions.
On Wednesday, the Sensex ended at 34,109.54, up 284.01 points or 0.84%. The Nifty touched the 10,000 mark 0during the day, for first time since 13 March, before ending at 10,061.55, up 82.45 points or 0.83%. While stock markets have been underplaying key risks such as rising number of covid-19 cases, weak corporate earnings and a slowing economy, ride to the 10,000 mark has not been easy for the 50-share index.
Nifty charted the 10,000-mark in 52 sessions since 13 March. It had shaved off 26.07% to hit lowest point of the year at 7511.10 on 24 March as investors started to dump equities to hoard cash as a safety measure as number of covid-19 cases rapidly increased in India. The Nifty had touched its all-time high on 20 January, and from then it slipped nearly 40%. In this period while Nifty gradually climbed to 10,000, the index gained 5.23% and Sensex rose 4.25%.
Heading into the gradual relaxation of restrictions from 1 June onward, activity trackers suggest marked sequential improvement in some demand-side indicators like retail auto sales and continued progress in rural indicators, said UBS Securities.
However, analysts at UBS Securities still feel that risk-reward is unattractive after recent rally in Indian markets. “Recently announced reforms are positive, although the impact of the stimulus measures is unclear. Measures like credit guarantees should help though. Our Nifty target of 9,900 for March-end 2021—with upside/downside scenarios of 11,500/6,700—implies unattractive risk-reward after the recent rally. Labour shortages and the execution of long-term reforms remain key variables,” it said.
Analysts also said that favourable global cues, expectation of a good monsoon and the hope that things will slowly get back to normal contributed to the markets rally.
“Technically, the Nifty has rallied over 1000 points in a very short period of time, and momentum indicators suggest that the market is in to the overbought situation and meaningful correction is not ruled out. The current rally is largely attributed to a sharp rally in banks and financial services stocks and the texture suggest these stocks may outperform in near term. Hence, any short term corrections should be used to add quality BFSI stocks with the medium term time horizon,” Shrikant Chouhan, Executive Vice President, Equity Technical Research, Kotak Securities said.
However, services data stoked a renewed fear of a long drawn out economic recovery unless there is a push given to stoke demand for services in the economy. The India services Purchasing Manager’s Index (PMI) released by IHS Markit stood at 12.6 in May, slightly better than 5.4 recorded in April, but still way below the 50-mark that divides contraction from expansion.
Indian rupee closed at 75.48 against the dollar, down 0.15% on Wednesday. According to Rahul Gupta, Head of Research- Currency, Emkay Global Financial Services as investors have started focusing on the prospect that economies are re-opening all over the world from the pandemic, risk sentiment have turned positive and dollar index is subdued amongst major emerging market currencies. “There still exists slew of risks, including US-China trade tiff and concerns that it may jeopardise the phase-1 deal,” he added.