Stock indices in India reached fresh highs for the fifth consecutive day on Thursday, with the Sensex nearly hitting the 86,000 mark at one point. The Sensex closed the day at 85,836.12 points, up 666.25 points or 0.78%, while the Nifty closed at 26,186.00 points, up 181.85 points or 0.70%. The Nifty auto and Nifty metal sectors were the top gainers, rising by 2.26% and 2.13% respectively. This surge in Indian stocks can be attributed to the US Federal Reserve’s decision to cut interest rates by 50 basis points, leading to a flight of capital to high-interest rate markets like India.
The US Federal Reserve’s loosening of monetary policy through rate cuts typically results in a movement of capital towards countries with higher policy rates. The larger the rate cut in the US, the stronger the tendency for capital to flow towards alternative investment destinations such as India. In addition to this, foreign portfolio investors (FPIs) have been increasing their investments in India in search of better returns due to interest rate differentials. Data from NSDL showed that FPIs have invested Rs 49,459 worth of stocks in India in September, marking the fourth consecutive month of net buying.
According to VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services, there are no immediate triggers that could significantly impact the market in the near term. While upward movements may attract selling by FIIs, Vijayakumar believes that domestic liquidity can absorb such selling without causing a significant downturn. He suggests that investors prioritize safety and favor large-cap stocks due to the lack of valuation comfort in the market, with mid and small-cap segments being overvalued. Additionally, Vijayakumar believes that the Bank Nifty has more potential for growth and offers valuation comfort in the current market environment.
Despite the potential for FII selling, which could see some capital being moved to markets like China and Hong Kong that are currently cheap and experiencing an uptrend, it is unlikely to have a significant impact on the Indian stock market. This is due to the ample domestic liquidity that can easily absorb any potential selling pressure. The ongoing support from foreign portfolio investors and the overall positive sentiment in the market have contributed to the continuous rise in Indian stock indices. As the market continues to reach new highs, investors are advised to remain cautious and focus on large-cap stocks for better safety and potential returns.
Looking ahead, the market outlook remains positive, buoyed by the supportive factors of loose monetary policy, increased FPI investments, and ample domestic liquidity. While there may not be immediate triggers for sharp movements in the market, investors should stay alert to any developments that could impact market dynamics. Keeping an eye on global economic trends, interest rate policies, and investor sentiment will be crucial in navigating the evolving market landscape and making informed investment decisions.
