In its most powerful run yet, the bellwethers raced past several crucial psychological barriers. After a few weeks of meandering around the 7900 levels, indices broke through the hurdles zooming over 350 points to comfortably settle at its highest levels of 8156.65 this calendar year.
As often happens, when there is a resistance, the markets are always testing the tops. But in a finally gush of momentum, indices break through barriers and resistances as money floods the markets. The 1,325-point surge in the Sensex happened in a span of just three days. One can now say markets are back firmly in bull territory.
Now, after weeks of fence-sitting, global investors' appetites are on the plate for risk-on trades. The global market was looking for the icing - and oil at $50 is turning to be a good one.
Foreign investors purchased stocks worth Rs 1,556.26 crore in just three trading sessions. Up until then, they had been marginal sellers, of stocks worth more than Rs 800 crore. The net result last week was that foreign investors purchased stocks worth Rs 675 crore.
Foreign investors have changed their stance from marginal sellers to steady buyers, and if this sustains, the Indian markets are set to scale higher.
What's more, with domestic investors also buying in the past few weeks, the market is getting a double-booster shot. Now, if foreign investors continue to keep the faith in Indian markets, investors in large-caps are going to reap the rewards.
Among other things, rising oil prices puts less pressure on sovereign wealth funds to sell other assets compensating for losses due to lower oil prices. It also signals that the world economic growth may not be all that bad as forecast because demand for oil means that the engines of global growth are running smoothly - and picking up pace.
The market needs good triggers.
And, after oil, another trigger has come in the form of better-than-expected earnings growth of Indian large caps. For India, Inc., the quarter gone by has been one of the best in two years.
Operating profits have expanded to more than 25 percent, thanks to lower input prices, the check on costs and rising consumption. The results season is not yet past, but the figures for nearly 300 companies are sanguine. Net profit growth has crossed 7 percent.
Another positive trigger: the PSU banks are done with their pit stops. The PSU Bank Index surged 10 percent last week after the country's largest bank, the SBI, reported a drop in net profit to Rs 1,264 crore, down 66 percent. The bank still has additional provision cover that is unused, which has gone down well with the markets. The stock gained 6.4 percent in a single day.
Clearly, the gripping slowdown in the PSU banking space is coming to an end. The Indian markets need the finance sector to do well as its one of the biggest constituents of the market. The economy, too, needs the finance sector to perform because the capital and infrastructure expenditures will need to be funded, and only big, strong banks can do that.
With all these triggers in place, investors now just need to keep investing steadily. And large caps are on the "expressway" again. For quite a while, their valuations trailed mid-caps. The gap has now narrowed. Valuations of mid-caps are now only 40 percent higher, compared to the over 65 percent valuation gap just six months ago.
However, given that the stock market has run up so swiftly, a correction may be in the offing. And large-caps are likely to shed some gains. A mid-cap rally usually follows a large-cap one. But this is still early days for a mid-cap revival. Hence, if a correction is around the corner, large caps can be your first choice.
BW Reporters
Having addressed business, stock markets and personal finance for the last 18 years, Clifford Alvares has ridden the roller-coaster markets - up close and personal -successfully, traversing the downs and relishing the rises. The greater part of his journalistic ventures has gone into shaping articles about how to shape portfolios
