Unabated foreign investor purchases and lower-than-expected contraction in the Indian economy are keeping the stock market humming. Key indices closed at record highs but simmering consumer inflation and rich valuations are keeping market participants on the edge. While investors have taken note of the advancing bond yields in the past month on account of rising prices, they will weigh the Reserve Bank of India’s comments on inflation to determine the road ahead.
For now, investors see little threat to the rally with foreign funds extending their purchases of Indian equities to December after pumping a record ₹69,000 crore in November. On Tuesday, they bought shares worth ₹3,242 crore, helping the Sensex climb over 500 points, or 1.15%, to a record close of 44,655.44. The Nifty jumped 140 points, or 1.1%, to all-time closing highs of 13,109.05. The Volatility Index shed 0.2% to 20.18, showing traders see little risks to the market for now.
Traders are watching the Nifty’s all-time high of 13,145 of November 25, which could be a hurdle.
Friday’s GDP data showed that the Indian economy contracted 7.5% in the September quarter, which was lower than what the Street expected. With the rollout of vaccines against Covid-19 expected soon, investors are hoping that there could be a rebound in economic growth next year.
Money managers said the RBI is likely to keep the benchmark interest rates unchanged in its next monetary policy review announcement on Thursday in light of heightened retail inflation, which is above the central bank's comfort level.
Nifty's 12-month forward PE ratio at 21.4 times is at an all-time high.