Indian Markets Extend Their Gains

Mon, 18 Apr 11:30 am

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After opening the day on a positive note, the Indian Markets have added to their early gains. Sectoral indices are trading on a positive note with stocks from the IT, telecom, and consumer durables sectors leading the gains.

The BSE Sensex is trading up 112 points (up 0.4%) and the NSE Nifty is trading up 34 points (up 0.4%). The BSE Mid Cap index is trading up by 0.8% while the BSE Small Cap index is trading up 0.9%. The rupee is trading at 66.64 to the US$.

The upbeat monsoon forecasts by the Indian Metrological Department (IMD) has sparked optimism in Indian markets. The announcement made last week helped Indian markets clock around 3.8% weekly gains (from 8th April to 13th April).

In a poll of leading fund managers, research heads and brokers conducted by ET (Economic Times), most said that the Sensex would gains at least 13% by December. The optimism for this uptrend was backed by expectations of further monetary policy easing in the event of strong rain in the June-September season. Also, overseas investors regaining their appetite for emerging markets could keep the Indian markets in an uptrend.

As stated in the Economic Times article, a majority of the 35 people polled were of the opinion that the Sensex may rise to 29,000 - 35,000 points by year-end. About 26% said the index could hit 30,000-32,000 points by December while 22% said the benchmark could even touch 32,000-35,000 points. About 13% predicted the Sensex at 29,000-30,000 points by year-end.

Rahul Shah, co-head of research at Equitymaster, has predicted a rise in the Sensex over the next few years. His rationale is that if profit margins of Sensex companies, which are currently at 12.2%, revert to their ten-year mean of 13.5%, and if EPS grows at its long-term average of 15%, the Sensex could go up 70% in the next two to three years.Apurva Seth, editor at the Daily Profit Hunter, also dug deep into his charts to see if they confirmed the 70% Sensex upside Rahul predicted. Click here to know whether his analysis based on the charts support a 70% surge in Sensex.

The above optimism comes as a relief for Indian markets that witnessed losses in the first two months of 2016. Also, the surge during last week came in after a 2.4% decline during the last week when the RBI cut its repo rate by 0.25% to 6.5%.

As for the monsoon forecasts, a normal monsoon will lead to higher disposable income in the hands of farmers, which in-turn will boost the rural consumption. To add to this, a normal monsoon will also help to keep the inflation at low levels, by bring down food prices. The possibility of a good monsoon would also increase the chances of the country's central bank retaining its accommodative monetary policy. However, there have been many instances in the past where forecasts have gone wrong. Provided they are accurate, a good monsoon will help to revive the rural sentiments.

In another important news update, it was reported that the amount of foreign exchange reserves that the Reserve Bank of India (RBI) keeps with overseas banks has more than tripled since April 2015. The total funds parked with the overseas branches of foreign banks rose to US$ 13.9 billion in February from US$ 3.5 billion in April last year.

However, the RBI stated that the country's total foreign currency assets in the same period dipped from US$ 351.9 billion to US$ 348.4 billion.

The uptick in the foreign deposit component in India's reserves suggests that the RBI is waiting for the right time to put its cash in overseas assets and to counter the any currency volatility that could arise.

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