A fresh bout of inflows from overseas investors in the wake of stronger economic growth data propped the stock market to new highs. The momentum pushed the Nifty past the psychologically crucial 8000 mark, which seemed insurmountable for a while amid worries that the market was overheated after the recent rally.
While some traders covered their short positions on the Nifty on Monday after the index crossed the milestone, a larger section stayed put with their bearish bets, waiting to see whether the rally has enough strength in it to move ahead. Analysts said if the Nifty stays above the 8000 level for a couple of days, traders would be forced to cover their short positions.
NSE's Nifty rose 73.35 points, or 0.92%, to close at 8,027.70 while BSE's Sensex gained 229.44 points, or 0.86%, to close at 26,867.55. Analysts said gains in the near term are capped because valuations of many largecaps are rich at this juncture.
An overall decline in foreign institutional inflows, selling by LIC, India's largest domestic institutional investor and fresh share sales could also cap advances over the next couple of months.
While foreign institutions net bought shares worth Rs.554.14 crore on Monday , inflows from these investors have become inconsistent in the last month. In August, FIIs net bought shares worth Rs.5,430 crore, taking their tally for the year so far to about Rs.78,000 crore.
Analysts said many of the worries about India may be in the short-term as the economy is showing signs of recovery. India's gross domestic product (GDP) for the first quarter grew at the fastest pace in two-and-a-half years. Adding to the cheer, Reserve Bank of India said the economy's current account deficit (CAD) in April-June narrowed sharply to 1.7% of the GDP from 4.8% in the same period a year ago.
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