DIIs are stars in this bull market
But risks also building up with IT, pharma, PSU banks and power underperforming
The benchmark BSE Sensex breached the psychological mark of 32,000-level for the first time on Thursday, much to the joy of investors. Contrary to the popular belief that foreign investors have propelled the index to dazzling heights, it is the domestic institutional investors (DIIs), who have played the anchor role in Sensex zooming past this all-time high level.
Market observers attributed the surge in stock to abundant liquidity rushing to take positions in the equity market as returns from real estate and gold are not looking encouraging at a time when economy and earnings are lagging.
Since the beginning of the fiscal, mutual funds have pumped in a whopping Rs 32,873.74 crore in the equity market, more than double of the FPI inflows of Rs 15,303 crore (See table), as per data provided by Securities and Exchange Board of India. The DIIs’ role is all more significant considering the fact the barometer took just 48 days to scale 32,000-level after crossing the 31,000-level on May 26 this year.
Even on Thursday, domestic institutional investors were net buyers by Rs 279.13 crore while the foreign portfolio investors were net sellers by Rs 59.15 crore, as per the provisional exchange data.
With Sensex soaring to smash records, the BSE’s market capitalisation has hit a high of Rs 130.91 lakh crore.
But risks are also building up in the market with the earnings season on and several sectors like IT, pharma, public sector banks and power under performing. Shrikant Chouhan, head, technical research, Kotak Securities, however, cautioned, “Technically Nifty would face resistance at 9,970 and at 10,150. On the downside, till the market is not breaking 9,700 trend would remain strong.”
Analysts said a slew of factors such intense hopes of a interest rate cut in August, GST becoming a reality, good monsoon rain and forecast of heavy rains in deficient regions in the next few days boosted the market sentiment. Hopes of rate cut have brightened after inflation falling to as low as 1.54 per cent in June.
NSE’s Nifty 50 too moved up further towards its 10,000 milestone as it touched a new high of 9,897.25 intra-day and finally closed at 9,891.70.
But in the broader market, midcap and smallcap indices underperformed leading to negative advance-decline ratio.
Sujan Hajra, chief economist, Anand Rathi Share and Stock Brokers, said, “With very low inflation and industrial growth as well as contraction in fixed investment, capital goods and consumer durables production, a cut in the policy rate by the RBI at its forthcoming policy meet looks a near certainty. If low inflation persists beyond July 2017, another rate cut in this financial year cannot be ruled out.”
Rate sensitive sectors moved up, led by banks, capital goods and auto. Nifty Bankex index closed at record high of 23,888.65 after creating a new high of 23,938 in the intra-day trade led by gains ICICI Bank (1.71 per cent), capital goods major Larsen & Toubro(1.25 per cent) and auto major Maruti (1.22 per cent). But there was participation from weaker sector as well with Bharti Airtel up 1.45 per cent and Sun Pharma up 1.26 per cent. Index heavy weight ITC emerged as top Sensex gainer (3.03 per cent).
Good rains in several parts of the country especially East and North East India in the last few days and Indian Meteorological Department’s forecast of heavy rains in Western India’s Konkan and Gujarat region cheered FMCG sector stocks.
Kunj Bansal, executive director & chief investment officer, equity, Centrum Wealth Management, said, “June was a month where the markets did not see any fireworks. But the rain God’s blessings, record inflation lows, and so far a smooth GST transition seem to have brought the bulls back in July. The markets don’t like uncertainty and now that GST is live and the de-stocking which made everyone sanguine on the quarter’s results could be also be largely behind us.”
“Momentum has been stoked by hopes of a rate cut given the lowered industrial output and softening inflation. Hence, the sector rotation leadership baton has been passed to consumer and banking which form a large part of the index. Overall, it’s a ‘not too hot/not to cold’ balance for the market as of now which could be upset with incremental negative earnings surprises from pockets such as exporters,” Bansal said.
Columnist: 
Ravi Ranjan Prasad
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