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Reasons for 12 percent spurt in Sensex in 4 months at all-time high
Reasons for 12 percent spurt in 4 months lifts Sensex
to all-time high
Domestic equity benchmarks BSE Sensex and NSE Nifty scaled life-time highs of 30,207 and 9,392, respectively, in morning trade on Wednesday.
In a sustained rally that started from December 26, 2016, the 30-share BSE Sensex has risen 12.55 per cent, or over 3330 points, year to date to hit 29,933 on May 9 compared with its January 2 level of 26,595. The 50-share Nifty index of NSE jumped from 8,179 to 9,316 during this period.
Here are the top six factors driving the rally in the domestic market.
Good monsoon predictions
The forecast of 100 per cent rainfall this monsoon is the immediate trigger for the market rally on Wednesday. The Indian Meteorological Department (IMD) on Tuesday said monsoon rainfall could be ‘normal’ and bring 100 per cent rainfall instead of 96 per cent as predicted earlier this year. Fertilizer stocks rallied.
Falling crude price
A fresh bout of decline in crude oil prices further buoyed sentiment in the domestic market. Crude oil prices have collapsed to their lowest level since late November as investor worries about the stubbornly persistent glut erased most of the gains that followed last year’s Opec output cut. They include oil marketing companies which benefit from higher refining margins, plastics and plastic products, paints and lubricants. It can also benefit auto companies which typically see an improvement in demand when fuel prices dip. Therefore, any pass-through of lower crude prices in the form of lower fuel prices can help improve sentiment for auto companies.”
Strong FII and DII flows
With the expectation of improving macroeconomic environment, foreign institutional investors have poured nearly Rs 40,000 crore in the domestic equity market since the beginning of this calendar year. The goods and services tax (GST) is expected to be rolled out from July 1. Some market experts say GST regulation will help companies in terms of “ease of doing business” and overall cost efficiency.
The spillover impact of demonetisation on Q4FY2017 earnings is much lower in intensity in many consumer-facing sectors than was expected earlier. Moreover, the consensus earnings estimates are also stable for the past few months.
Sector-specific actions by the government have also supported the ongoing rally. InvITs for the infrastructure sector, REITS & low cost housing for the realty sector and UDAN for the power sector have improved sectoral outlook.
PSU banks will breathe a lot more easier. Last week, the government also unveiled a new mechanism to address the NPA problem in the banking sector.
The ruling BJP’s sweeping victory in the UP elections has given the government additional momentum needed to drive its reforms agenda further and faster. This has also boosted overseas investor confidence on the economy and equity and debt markets are seeing a steady rise in inflows.