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Nifty closes above historic high of 9,500

Pavan Burugula / Mumbai 17 May 17 | 12:09 AM

Indian equities are officially in a bull market now, with the benchmark Nifty gaining about 20 per cent since the post-demonetisation low. The Nifty crossed the psychological barrier of 9,500 points on Tuesday to close at 9,512, up 1,604 points or 20.28 per cent from the previous lows on December 26 last year.

According to experts, a 20 per cent rally from the previous low confirms the market is in a bull phase. Similarly, a 20 per cent correction from the peak is considered the beginning of a bear phase.

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At the current closing, the market capitalisation of the BSE-listed companies in dollar terms is $1.99 trillion — making Indian markets just $7.3 million short of joining the elite $2 trillion club.

The rally this year has also driven up valuations of Indian equities. The one-year forward price to earnings (P/E) ratio of Nifty is 22.4 times according to Bloomberg. This makes Indian markets more expensive in terms of the P/E ration compared to other major global indices including Dow Jones, S&P 500, FTSE 100, DAX, Shanghai Composite and Nikkei.

The only other major index that is valued higher than the Nifty is the Nasdaq Composite, a gauge of 3,000 listed equities currently trading at a forward valuation of 33 times the P/E.

According to U R Bhat, managing director, Dalton Capital Advisors, although valuations are on the higher side, the markets are still not expensive. “The rise in valuations of Indian equities is on account of high demand from both domestic and foreign institutional investors (FIIs). Although in absolute terms, Indian markets are trading at high P/E multiples, considering the potential of our market and economy, our securities are not expensive. However, these valuations need to be supported by strong corporate earnings," Bhat said.

FIIs have bought equities worth $6.7 billion (about Rs 43,000 crore) in 2017 so far, while domestic mutual funds (MFs) have bought shares worth Rs 22,709 crore.

Market participants expect the current rally to continue until the domestic institutions, especially MFs, continue to pour in money. However, less than expected corporate earnings could be a major tailwind, they added.

“The earnings for the quarter ended March were not very good, although they were better than Street expectations. Going forward, we will see a sector wise divergence in earnings. While consumption-related sectors will see good numbers, sectors such as information technology and banking could disappoint," said Sunil Shah, head of research, Axis Securities.

On Tuesday, the Sensex gained 260 points or 0.86 per cent, to close at 30,582 points. On the other hand, the Nifty went up 67 points or 0.7 per cent, to close at 9,512. This is the third time in the last five sessions that Indian benchmarks have closed at new highs.

However, the broader markets marginally underperformed the blue-chip indices with the BSE Midcap and Smallcap indices closing 0.4 per cent and 0.3 per cent higher, respectively.

Shares of Bharti Airtel went up nearly three per cent making it the best performer among the Sensex constituents. Hero MotoCorp and Tata Consultancy Services shares went up 2.9 per cent and 2.7 per cent, respectively.

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