New peak awaits Sensex amid unabated FII flows

A gentle push is all that the BSE benchmark Sensex needs to post new highs in the week ahead. With foreign portfolio inflows showing no signs of abating, on hopes the US Federal Reserve might defer the rollback of its monetary stimulus, the Sensex is expected to breach the existing record closing high of 21,004.94 — only 0.6 per cent away from Friday’s closing of 20,883. The index had touched this level on November 5, 2010.

Hope of a National Democratic Alliance (NDA) -led coalition forming the next government after April 2014, following recent exit polls, is also fuelling optimism. But brokers feel gains could be capped as domestic investors might continue to sell at these levels.

If the Sensex manages to make fresh closing highs, traders would look forward to the index breaching its highest level of 21,206.77 (January 10, 2008) — about 1.5 per cent away from Friday’s closing.

“Expectations of a delay in the withdrawal of the Fed’s stimulus package has taken care of any immediate worry about the global liquidity,” said Prateek Agrawal, chief investment officer, ASK Investment Managers.

Click on NEXT for more...

Earlier, investors were anticipating the US central bank would start the rollback of its gigantic bond-buyback programme — known as the Quantitative Easing (QE)3 — by December. But, now, with the US economy seen slowing because of the 16-day US shutdown and concerns surrounding future talks to increase the US debt ceiling, the Fed is expected to defer the withdrawal to a couple of months into 2014.

Foreign institutional investors (FIIs) have pumped about Rs 7,500 crore into stocks in the last 11 trading days, taking their overall tally to Rs 78,600 crore so far this year.

The Nifty is about two per cent from its record closing level of 6,312.45 (November 5, 2010) and 2.7 per cent from its highest level of 6,357.10 (January 8, 2008).

Technical analysts said it would be crucial for the Nifty to cross 6,200 if it has to touch a new high. The index has failed to breach the 6,100-6,200 range on the previous four occasions, as investors, especially domestic ones, have sold at these levels.

“If the Nifty breaches the 6,200 level, there is a possibility it will touch an all-time high of 6,350 in the week ahead,” said Shrikant S Chouhan, senior vice-president (research), Kotak Securities.

Click on NEXT for more...

Axis Capital CEO Nilesh Shah said global investors were more bullish on India than domestic ones. But, a section of the market believes India is just one of the beneficiaries of the renewed FII flows into emerging markets, especially by global exchange-traded funds. Also, they argue the rally lacks depth as it is concentrated in stocks of interest-sensitive sectors like capital goods, banking and metals.    

Investors will closely watch the outcome of the policy-review meeting on October 29, when the Reserve Bank of India is expected to tighten the repo, or the policy rate, further. Fund managers said increase in the repo rate, coupled with disappointment in earnings, could be triggers for the market to correct.

“If earnings disappoint, markets will find an excuse to correct. Investors will have no hesitation in booking profits at the current level,” said Amish Munshi, senior fund manager and head of research (equities), Tata Asset Management.