Published on July 25, 2017
1. Gush of liquidity: 5 factors that helped Nifty cross 10,000 Nifty50index scaledthe 10,000 mark forthe firsttime inhistoryinopeningtrade onTuesday.Ittook91 sessions,or4 months,forthe index torally1,000 points – from9,000 mark to hit10,000 levels Thus far inJuly,the Nifty50index hasgainednearly500 points,orover3%. From a closinglevel of 8,185 on December30, 2016, Nifty50has gained1,815 points,or 22%, thusfar in calendaryear2017 (CY17), and has become the best performingmarketgloballyduringthisperiod. Here are five reasonsthathave triggeredthe recentrally: Sharp rallyinindex heavyweights:The Nifty50rally,inmostpart,has beenfuelledbyasharp rallyin Reliance IndustriesLimited(RIL) thathasmovedupover10% thus far inJuly;and zoomedover44% since the start of calendaryear 2017 (CY17).The lastlegof the rallywasfuelledbyRIL’sresultsthat were inline withexpectations.The surprise elementaccordingtoanalysts,however,wasthe 1:1 bonus announcementbythe companyatits 40th Annual General Meeting(AGM) lastweekandthe launchof a 4G feature phone. "RIL reportedstandalone financialsinline withexpectation.However,GRMof USD11.9/bbl was higher than our estimate.RILannouncedlaunchof itsJiophone whichistargetingcurrentpool of 530 million feature phone users.Currentpaidsubscriberbase hasimprovedto100 million IndiaBusinessNews. Goingfurther,Telecomwould be amajordriverof stock performance,"saysanote fromMotilal Oswal Securities. ITC, too,contributedasignificantpartwithagain of around 22% on year-to-date basis,asperACE Equitydata. RIL andITC have a 7.65% and6.36% weightage inthe index.
2. Interestrate cut expectationssoar:Withthe latestconsumerprice inflation(CPI)printmoderatingto 1.5% y-o-yinJune from2.2% inMay, expectationshave soaredforarate cut bythe Reserve Bankof India(RBI) initsupcomingpolicyreview onAugust2. “On a seasonallyadjustedbasis,we estimatethatmomentumin‘core core’inflationmoderatedinJune and our trimmedmeanmeasure alsoeasedto3.5% y-o-yfrom3.8% in May. Discountsbyretailers (clothing&footwear,householdgoods)anda sharp moderationineducationprice inflation(tuition fees) were responsible,confirmingamore broad-basedmoderationinprices,”wrote Sonal Varma,chief IndiaeconomistatNomuraina note. Since April,CPIinflationhasbeensurprisingtothe downsideand the June inflationprintcame at1.5%, whichis50bps belowthe lowerbandof RBI’smandatedtargetof maintaininginflationwithinthe 2%-6% band. “Giventhe lower-than-targetJune inflationprint,we thinkthe central bankwill be able tojustifya 25bps rate cut in the Augustmonetarypolicy,”saysKaushikDas,director&chief economist –Indiaat Deutsche BankResearch. Absence of global negatives,especiallythe USFed:The US Federal Reservechair,JanetYellen,ina recenttestimonyhintedata gradual rate hike duringthe yearandplansto start trimmingitsbond holdings.Inhersemi-annual testimonytothe Congress,Yellensoundedcautiousonthe inflation outlook.She saidthatthoughthe US economyishealthyenoughforFedtoraise rates,a low inflation rate andlowneutral rate may leave the central bankwithdiminishedleeway. The developments,analystssay,were expectedgiventhe inflationtrajectoryandare alreadypricedin by the markets. Gush of liquidity:The sharprallyinIndianequitiesinCY17 has beenfuelledbythe gushof liquidity – bothfrom foreigninvestorsanddomesticinstitutions/mutual funds.Collectively,theyhave pumped overRs 97,000 crore inthe equitysegmentthusfarinCY17. As a result,the benchmarkindiceshave ralliednearlyover20%year-to-date (YTD) tobecome the bestperformingmarketglobally.
3. Monsoonforecast:The south-westmonsoonshowedstrongsignsof revivalacrosspartsof the country withthe weekendingonJuly19,recording11% excessrainfall.Accordingtothe latestweatherupdate by the IndiaMeteorological Department(IMD),Indiareceived75.3millimetres(mm) of rainfall fromJuly 12 to July19. Accordingto the IMD, the country wasexpectedtowitness67.6mm of rainfall. A normal monsoon,analystssay,will helpkeepinflationundercheckandcan leadtoa cut ininterest ratesby the Reserve Bankof India.