The Nifty logged gains of 191.55 points or 1.28 per cent to close at 15,115.80 after setting a new lifetime high of 15,159.90. The Sensex clocked a fresh record high of 51,523.38 during the session before closing 617 points or 1.22 per cent up at 51,348.77. Local stocks were tracking the advance in other Asian markets, which also jumped on hopes that a $1.9 trillion coronavirus aid package will be passed by lawmakers in the US as soon as this month.
CLSA’s technical analysts led by Laurence Balanco said the market is vulnerable to a correction.
“After the sharp decline off the 21 January peak of 7 per cent, the Nifty has staged an equally sharp recovery rally,” Balanco said in a note to clients. “However, with the daily momentum indicator lagging price action, a price/momentum divergence is developing which suggests the uptrend is mature and vulnerable to a correction/consolidation over the coming sessions.”
The Sensex and Nifty have gained over 10 per cent since the budget on February 1.
Though the market showed signs of fatigue on Friday with the Nifty closing below 15,000 after crossing it, a fresh bull charge led by Mahindra & Mahindra and some lenders helped the index close above the psychological barrier. But more obstacles await the market now. “15,200 might be a hurdle for Nifty to cross,” said Sriram Velayudhan, vice president, IIFL Alternative Research.
Experts said there’s growing discomfort over market valuations, traditionally measured by the price-to-earnings ratio. At 22.1 times, the Nifty’s 12-month forward PE is at a 44 per cent premium to its 15-year average, near all-time highs, according to a CLSA report.
A spate of good earnings and renewed foreign fund inflows have ensured that rich valuations do not matter for now.
“Markets are going higher on the back of strong earnings and economic recovery as well as low bond yields,” said Sanjeev Prasad, co-head, Kotak Institutional Equities.
On Monday, FPIs bought local shares worth a net Rs 1,876.6 crore and domestic institutional investors sold local shares worth Rs 505 crore on Monday. Since budget day, FPIs have pumped Rs 18,400 crore into Indian equities so far.
A reversal in the direction of bond yields will not be good news for equities, especially when market valuations are at record levels.
“Bond yields will not stay low for a long time and will move up by the second half of the year, which could be a drag on the market. Multiples are also rich,” Prasad said.
While M&M ended up 7 per cent due to better-than-expected results, those of Bajaj Finserv, Bharti Airtel, Power Grid, Infosys, ICICI Bank, Tech Mahindra and L&T gained 2-3 per cent.
