Stocks at new high; volatility jumps too
The Nifty hit a fresh high of 21,675.75, while the Sensex soared to an intraday record of 72,119.85 as FPIs purchased a provisional ₹2,926.05 crore even as domestic institutional investors (DIIs) sold ₹192 crore worth of shares. Though the indices closed a tad lower each, they posted closing records, with the Nifty gaining 1% to 21,654.75 and the Sensex 0.98% to 72,038.43. The indices have risen for four straight sessions. Direct retail volumes aren’t reported daily.
The Nifty and the Sensex have now clocked annual returns of 19.6% and 18.4%, respectively. Interestingly, the last two months accounted for the bulk of this, thanks to heavy FPI inflows during November and December. The Nifty has run up 14.83% and the Sensex by 14.07% from the closing of 18,857.25 and 63,148.14, respectively, on 26 October. That means 76% of the Nifty’s annual rally happened in the last two months.
The latest leg of the rally has taken valuations past historic levels, with the Nifty trading at a one-year forward price to earnings (P/E) multiple of 19.9 times versus the five-year median of 17.97, with the Sensex P/E at 20.56 times against a historic 18.77 times median. The Sensex one-year forward is, in fact, near a two-year high.
Valuations jumping in such a short period has caused the Vix to rise 5.99% to 15.56 on 27 December, the highest reading since 15.58 on 22 February despite Wednesday’s rise. A rise in Vix increases the price for buying protection or hedging, through Nifty or Bank Nifty put options.
While market experts expect the momentum to continue on strong domestic and foreign inflows, some believe the market would be tested after IT majors, such as Infosys and Wipro, and Asian Paints declare their quarterly results in the second and third weeks of January next year.
“This is the typical year-end rally, but we might experience some turbulence because of tepid IT and consumer durable quarterly numbers due next month,” said Samir Arora, founder and fund manager, Helios Capital. “Of course, banking and hospitality, including travel, will perform. Whether the rally continues or falters due to profit booking will be known only then.”
Rajesh Palviya, SVP (technical & derivatives), Axis Securities, pointed to the Vix divergence because of markets having entered unchartered territory. “At these levels, fear has risen among some market constituents and that is causing the Vix to rise in anticipation of sudden volatility,” Palviya said.
The rally has been driven by FPI flows of ₹1.62 trillion and DII flows of ₹1.8 trillion year to date. One the other hand, retail investors, who buy directly, have chipped in with ₹8,700 crore from April to November. Interestingly, 40% of the FPI flows, or ₹66,276 crore out of ₹1.62 trillion, have happened in the past two months, which has boosted the rally.
Wednesday’s rally was led by commodity and automobile companies, including Hindalco, UltraTech Cement, Bajaj Auto, Tata Motors and JSW Steel, which gained between 2.7% and 4.44%.
A noteworthy feature of Wednesday’s rally was the outperformance of large-caps to the mid- and small-caps. The Nifty and the Sensex gained a per cent each, while the Nifty Midcap 150 rose 0.39% and the Nifty Smallcap 250 rose 0.3%.
Aside from the odd day of underperformance, mid- and small-caps have outperformed the benchmarks. For instance, in the past two months, while the Nifty and the Sensex have gained over 14%, the Nifty Midcap 150 has risen 17.81% and the Nifty Smallcap 250 by 17.61%.
The main contributors to the rally in the past two months by points are HDFC Bank (353.74), Reliance Industries (253.61), L&T (173.02), Infosys (160.32) and ICICI Bank (137.52).
The Bank Nifty rose to a record 48347.65, before settling 1.17% higher at 48282.2.
“The upward trend was predominantly supported by the Santa Claus rally in anticipation of early rate cuts by the US Fed and cooling global inflation,” said Vinod Nair, head of research at Geojit Financial Services. “Additionally, the news of major shipping companies resuming operations through the Red Sea despite ongoing tensions further bolstered domestic sentiment.”
“The upward trend was predominantly supported by the Santa Claus rally in anticipation of early rate cuts by the US Fed and cooling global inflation,” said Vinod Nair, head of research at Geojit Financial Services. “Additionally, the news of major shipping companies resuming operations through the Red Sea despite ongoing tensions further bolstered domestic sentiment.”
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Published: 27 Dec 2023, 11:50 PM IST
