Market benchmarks the Sensex and the Nifty hit new highs of 52,626.64 and 15,835.55 in the morning trade on June 11 amid positive global cues. In sync with the benchmarks, the BSE midcap and smallcap indices, too, touched their all-time highs of 23,045.01 and 25,248.88.
The Indian market has been among the top performers globally this year. The Sensex has jumped 10 percent, while Nifty has logged a gain of 13 percent in the first six months of 2021.
The overall market capitalisation of BSE-listed firms is now more than Rs 231 lakh crore.
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“The US 10-year yield crashed to 1.44 percent and the dollar index is hovering around 90, which indicates that there is more leg for this bull market. The exuberance in the mid and small-cap space is an area of concern but markets can over-react proving the skeptics wrong in the short run,” said VK Vijayakumar, Chief Investment Strategist, Geojit Financial Services.
In 2017 the small index rose around 60 percent. The froth was removed in 2018 with big pain to the late entrants, he said. “Leading financial, IT, pharma and metal stocks are on a strong wicket. Stay invested in these segments while exercising caution when investing in small-caps,” Vijayakumar said.
Here are the 5 key factors that seem to have led the market to an all-time high:
1. COVID cases show sustained drop
India added less than 1 lakh cases for the fourth straight day on June 11. Cases rose by 91,702, while active cases fell by 46,281 and recoveries rose by 1.34 lakh.
However, the death toll rose by 3,403, with the mortality rate rising to 1.24 percent. The positivity rate remained below 5 percent at 4.49 percent against the previous day’s 4.69 percent. The recovery rate, too, has risen to 94.93 percent.
India’s COVID case count is at 2.93 crore, active cases 11.21 lakh, recoveries 2.78 crore and deaths at 3.63 lakh.
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2 Unlock trade
Many states have started to ease restrictions, boosting the market sentiment. As states roll back curbs, the demand environment may get better, which can have a positive impact on markets, experts said.
Unlock trade would be different in 2021 compared to 2020, since the lockdown was partial this year, experts said. They expect sectors such as hospitality, travel, and entertainment to benefit the most from pent-up demand.
“In the previous unlock theme, automobiles first performed then consumer discretionary, while BFSI was the last to pick up,” Naveen Kulkarni, Chief Investment Officer, Axis Securities said.
“This time it will be different as the pent-up demand will be varied across sectors. Small ticket discretionary could do well but the major pent-up demand is in travel and hospitality,” he added.
3 Retail investor boom
The Indian equity market is witnessing a strong influx of retail investors. The country’s leading exchange, the BSE, crossed the milestone of seven crore registered users on June 7, 2021.
Some analysts see a link between the sharp surge in the number of retail investors and the market at a record high.
“Increased influx of retail investors post COVID-19 is one of the reasons for the rally in the markets,” said Deepak Jasani, Head of Retail Research, HDFC Securities.
Jasani believes rising retail participation will reduce dependence on institutional investors (local or foreign).
“This will help spread the equity culture in the country faster. However, in case of a sharp sell-off, a lot of these retail investors could get stuck at higher levels and may stay away from markets for some time,” said Jasani.
4 Anticipation of faster economic growth
While many rating agencies have trimmed India’s growth forecast, there seems to be hope in the market that the country’s economy will register a better-than-expected economic growth once the COVID-19 comes under control and restrictions are lifted completely.
5 Vaccination picks pace
There is a broad consensus that vaccination is the only effective solution to the pandemic. With vaccination exercise picking pace and the government’s claim that it will have the entire population vaccinated by the year-end, market participations are foreseeing a strong bull market.
There are other reasons also that have underpinned market sentiment, such as the assurance from the central banks that the low-rate regime will continue for a longer period and enough liquidity for the financial market will be ensured.
Besides, stimulus talks have also been emerging of late, fanning hopes that the government may announce measures to speed up economic recovery.
However, there are risks too. The third wave of COVID-19 is still a possibility, while rising inflation can spoil the party. Economic indicators are showing signs of acute stress and the market is showing sharp contrast to the economic reality of the country.
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